On 14 April 2020, the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten, the AFM) announced that investment funds and investment firms are still not doing enough to combat money laundering and terrorist financing.

Under the Act on the prevention of money laundering and terrorist financing (Wet ter voorkoming van witwassen en financieren van terrorisme, Wwft) investment funds and investment firms are required to monitor client transactions and report any unusual transactions they encounter to the Financial Intelligence Unit. According to the AFM, the number of reports made by these financial institutions has grown strongly in recent years. In 2019, a total of 124 reports was made, against 78 in 2018 and only 6 in 2017, indicating a clear change in reporting behavior.

The AFM nevertheless believes improvements need to be made. It follows from an AFM investigation involving four investment fund managers and two investment firms that transaction monitoring needs to be improved and that unusual transactions need to reported at an earlier stage and in a more adequate manner to the Financial Intelligence Unit. The AFM’s main findings are:

  • Most of the institutions examined did not start with setting up an (automated) transaction monitoring system until late 2018 or early 2019.
  • These institutions are required to draw up a risk profile for each client, but the investigated companies did not take that risk profile sufficiently into account for purposes of transaction monitoring.
  • Many of the institutions investigated did not compile a transaction profile of each client (setting out their expected individual transaction behavior). Such a transaction profile is a good tool for monitoring transactions.
  • Many of the institutions investigated did not use concrete detection rules for identifying ‘striking’ transactions. If they did draw up such detection rules (with associated threshold values), they were often only very briefly elaborated or were insufficiently in line with the type of transaction or client.
  • The quality of the reports made fell short at times. The institutions investigated did not always indicate why they consider a transaction to be unusual. They also did not sufficiently consider taking measures against clients involved in unusual transactions. This could include tightening up the risk profile or so-called ‘targeted individual monitoring’.
  • The timeliness of the reports needed significant improvement at times. Institutions are required to report ‘immediately’ when they consider a transaction to be unusual.

In addition to the aforementioned investigation, the AFM also issued a Wwft request in 2019. The results made it clear that 20% of investment firms, 9% of (managers of) investment funds and 20% of investment funds with an AFM registration instead of a license did not have an (automated) system to monitor client transactions.

The above results have prompted the AFM to start a similar follow-up investigation in 2020 into transaction monitoring and the reporting obligation.