AML/CFT

On 6 March 2025, the European Banking Authority (“EBA”) launched a public consultation on four draft Regulatory Technical Standards (“RTS”) related to the anti-money laundering and counter financing of terrorism (“AML/CFT”) package. These RTS are part of the EBA’s response to the European Commission’s call for advice and will shape how institutions and supervisors comply with their AML/CFT obligations under the new AML/CFT regime.

The consultation runs until 6 June 2025.

On 24 February 2025, the Luxembourg supervisory authority for financial services (Commission de Surveillance du Secteur Financier – CSSF) published an updated sub-sector risk assessment for money laundering (“ML”) and terrorist financing (“TF”) risks in the Luxembourg collective investment sector (“CIS”), following previous assessments in 2020 and 2022. The report outlines regulatory developments, risk trends and supervisory findings, reinforcing the need for continued vigilance and enhanced compliance measures.

Luxembourg’s undertakings for collective investment in transferable securities (“UCITS”) and Alternative Investment Funds (“AIFs”) remain the dominant structures in the CIS. The ML risk assessment shows a medium inherent risk for both UCITS management companies (“ManCos”) and Alternative Investment Fund Managers (“AIFMs”). However, AIFMs face higher ML exposure due to their focus on illiquid assets such as real estate, private equity, and private debt, which pose greater transparency challenges. While UCITS remain largely exposed to global fund distribution risks, both UCITS ManCos and AIFMs have enhanced AML controls, reducing residual risk.

The TF risk assessment concludes that the Luxembourg CIS presents a low overall TF risk. The regulated nature and long-term investment strategies limit the likelihood of terrorist financing through the sector. However, vulnerabilities exist, particularly regarding Sharia-compliant funds, financial intermediaries, and investments in high-risk jurisdictions. The CSSF undertook targeted investigations, which found that less than 0.05% of investors had links to high-risk TF jurisdictions. Additional supervisory projects focused on sharia funds, financial intermediaries, and asset-level risk assessments, with no major deficiencies identified.

Moving forward, the CSSF will continue strengthening AML/CFT supervision, particularly for foreign IFMs managing Luxembourg funds. Enhanced public-private cooperation, improved AML training and risk assessments, and closer oversight of asset-level due diligence will be key priorities. While ML residual risk remains medium and TF residual risk remains low, the CSSF underscores the importance of ongoing monitoring to maintain Luxembourg’s reputation as a secure and compliant financial centre.