AML/CFT Compliance in Luxembourg: New Obligations for Funds

Against the backdrop of reinforced European and international anti-money-laundering and countering the financing of terrorism (AML/CFT) requirements, the Administration de l’enregistrement, des domaines et de la TVA (AED) has expanded reporting obligations for the 2024 financial year.

Previously, only Reserved Alternative Investment Funds (RAIFs) were required to submit reports issued by the responsable du contrôle du respect des obligations (RC). Now, this obligation applies as well to unregulated alternative investment funds (unregulated AIFs), whether they have appointed a fully licensed EU alternative investment fund manager (AIFM), a non-EU manager or AIFM, or a de minimis AIFM pursuant to article 3.2 of directive 2011/61/EU on alternative investment fund managers (AIFMD) as transposed into Luxembourg law. Internally managed unregulated AIFs are also caught by the new provisions.

Hence, all AED-supervised funds must now submit the following (by the close of business on 31 May 2025 for RAIFs or by the close of business on 30 June 2025 for other unregulated AIFs):

• an annual AML/CFT questionnaire
• a signed RC report
• an identification form for the appointment of the responsable du respect des obligations (RR) and of the RC either when first appointed or when one of them changes

Funds that have not yet established a comprehensive AML/CFT framework must do so immediately, as no exemption will be granted based on the principle of proportionality.

Why This Regulatory Reinforcement?

This regulatory update is part of a broader European initiative, driven by several key factors:

• Stronger measures against illicit financial flows: European and national authorities are increasing transparency requirements to combat money laundering and terrorist financing risks.
• Alignment with AMLD6 and the Transfer of Funds Regulation (TFR): These EU regulations seek to harmonize AML/CFT rules, enhance financial actors’ accountability, and improve transaction traceability.
• FATF recommendations: The Financial Action Task Force (FATF) has identified weaknesses in national AML/CFT frameworks, urging stricter oversight of investment funds.
• Stricter enforcement and sanctions: European regulators, including the AED, are intensifying supervision and imposing harsher penalties for noncompliance.
• Investor and market pressure: Institutional investors and banks are demanding stronger AML/CFT guarantees before committing capital to investment structures.

As a result, investment funds must adhere to stricter transparency and governance requirements to prevent potential misuse of their structures for illicit activities.

Next Steps

All AED-supervised funds must:

1. Define an AML/CFT Risk Appetite Statement (RAS) aligned with EU and national expectations
2. Develop and implement AML/CFT policies and procedures, ensuring compliance with Luxembourg and EU regulations
3. Conduct an AML/CFT risk assessment of their activities, incorporating risk factors identified by national and European authorities
4. Adopt a risk-based approach, categorizing counterparty relationships and performing appropriate due diligence (including on assets)
5. Appoint RR and RC with the necessary expertise
6. Cooperate with authorities and maintain open communication with the AED and other regulators
7. Ensure effective governance, apply risk mitigation measures, establish AML/CFT key performance indicators (KPIs) from service providers, produce an annual AML/CFT RC report, and provide AML/CFT training for governing bodies and employees

With the compliance deadline fast approaching, market participants are under growing pressure, and resources are being stretched. Failure to comply may result in sanctions and penalties imposed by the AED, as well as potential restrictions on access to the European market for noncompliant funds.

Quick AML/CFT Health Check: Key Questions to Consider

• Is your AML/CFT framework sufficiently robust and aligned with recent regulatory changes?
• Does your risk appetite statement (RAS) include key risk indicators (KRIs) for effective monitoring?
• Do your AML/CFT policies clearly define the due diligence process for counterparties and assets?
• Does your risk assessment methodology incorporate the latest EU AMLD6 requirements and FATF recommendations?
• Does your methodology align with the new transparency obligations under the Transfer of Funds Regulation (TFR)?
• Have you clearly defined the roles and responsibilities of the RR and RC? Have you found the right RC?
• Are you struggling with drafting the RC report or collecting the necessary data?
• If you delegate activities, is your oversight process effective? Do your KPIs provide adequate insight into your inherent business risks?
• Is your annual AML/CFT training program for governing bodies and RCs aligned with Luxembourg regulatory expectations and tailored to the fund industry?

How Goodwin Can Assist You

Given the increasing complexity of Luxembourg’s AML/CFT regulatory landscape, our firm offers tailored support to ensure your fund’s compliance, including:

• A rapid diagnostic review of your AML/CFT framework, identifying gaps and areas for improvement
• Assistance in drafting and updating AML/CFT policies and procedures, ensuring full compliance with AED and EU requirements
• Support in defining your risk appetite statement (RAS) and implementing a robust risk assessment methodology
• Help with drafting the RC report and regulatory reporting, including identifying relevant data and KPIs
• Guidance in selecting and training your RR and RC, ensuring an effective compliance governance structure
• AML/CFT training programs tailored to your needs, strengthening the expertise of your team and governing bodies
• Regulatory-watch services, keeping you ahead of future compliance obligations

With Luxembourg’s AML/CFT framework aligning increasingly with stringent European and international standards, investment funds — including those managed by non-EU AIFMs — must adopt best-in-class compliance and governance practices.

Anticipate these new obligations now and secure your AML/CFT compliance with our firm’s expert support.

Please reach out to us to discuss your needs and explore tailored solutions for your fund.

We would like to thank Lauréline DeCottignies for her assistance with this insight.

 

This informational piece, which may be considered advertising under the ethical rules of certain jurisdictions, is provided on the understanding that it does not constitute the rendering of legal advice or other professional advice by Goodwin or its lawyers. Prior results do not guarantee similar outcomes.