On 19 June 2024, the AML Regulation (EU) 2024/1624, the AMLA Regulation (EU) 2014/1620 and the 6th AML Directive (EU) 2024/1640 were published in the Official Journal of the EU.
ALFI’s involvement in this important regulatory development started long before the final text was issued: our dedicated working groups engaged early on in the legislative process, providing the European Commission and other EU and national institutions with expert opinions and detailed feedback, particularly on aspects of the AML regulation impacting the fund sector.
One of the most significant benefits of the AML Package is the increased harmonisation of AML rules across Europe. Switching from a directive-based framework to a regulation ensures uniform implementation across member states. It will, above all, reduce inconsistencies, a paramount element to consider in the context of cross-border operations, which are particularly common in the Luxembourg fund industry.
Luxembourg’s legal framework is largely aligned with most of the new requirements, thanks to the hard work put in place by the competent authorities and the private sector over the last years, as acknowledged by the recent FATF mutual evaluation report. However, some adjustments will still be necessary at national level. This will involve updating national laws, regulations and circulars. For example, the AML law of 12 November 2004 as well as the law of 13 January 2019 on the Beneficial Owner Register will need to be adapted.
In particular, the provisions related to Beneficial Ownership are among those causing concern for the industry.
Luxembourg’s legal framework is largely aligned with most of the new requirements, thanks to the hard work put in place by the competent authorities and the private sector over the last years, as acknowledged by the recent FATF mutual evaluation report.
One of these is article 67 of the AML Regulation, which requires certain medium-high or high-risk non-EU legal entities to submit, in certain circumstances defined by the regulation, beneficial ownership information to a central register in a Member State. This provision creates uncertainty among the Luxembourg fund industry, where many stakeholders deal daily with non-EU Entities and are aware of the difficulties they might be facing in requiring the registration of such information. The industry fears that this could reduce the EU market’s competitiveness, as some entities might prefer jurisdictions with a lighter regulatory approach. ALFI is committed to continue addressing this matter in upcoming consultations and advocating for a more flexible approach for the investment fund sector.
Another novelty in the AML Regulation is the presence of a provision (Article 61) expressly dedicated to the identification of the UBO of the UCIs. Unlike article 51, which outlines two alternative conditions (ownership and control) to identify the beneficial owner of legal entities, article 61 introduces an additional alternative category for UCIs: natural persons having the ability to define or influence the investment policy. While this may not significantly impact the current market practice in Luxembourg, the practical application of the provision will depend on the upcoming RTS.
ALFI will also advocate for flexibility with regard to Article 24 of the AMLR, which imposes a delay of 14 calendar days to report the discrepancies in beneficial ownership information. The delay is in fact very short, especially considering that the entities need to accompany their reports with information they have obtained indicating the discrepancy, the persons whom they consider to be the beneficial owners and, where applicable, the nominee shareholders and nominee directors along with the reasons for their designation.
Another area of focus for the investment funds industry to be watched closely, in view of the upcoming RTS, is Article 11 of the AMLR which requires obliged entities to appoint one member of the management body in its management function as compliance manager. This might create some difficulties in the Luxembourg fund market, where it is common practice for the board of directors to act collectively as RR or compliance manager. ALFI will advocate for a flexible interpretation of this provision. In this context, it is also to be noted that further clarification is expected as to the possibility for the Compliance Officer or RC to delegate tasks to service providers.
The points outlined above, along with several other key issues, still require clarification and further detail. Over the coming years, AMLA, EBA, and other EU bodies are expected to issue approximately 70 RTS. Only then will the full impact of these legislative changes on the Luxembourg fund industry be assessable.
Now, more than ever, it is crucial for the industry to contribute with its insights and engage fully in the upcoming consultations to ensure that its interests are well represented.
ALFI’s work on the AML Package is far from over. We are actively addressing the main advocacy priorities and have already participated in key discussions, such as the EBA Roundtable on 24 October 2024. Now, more than ever, it is crucial for the industry to contribute with its insights and engage fully in the upcoming consultations to ensure that its interests are well represented.