On 3 April 2020, the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten, the AFM) published a news item stating that the 15 investment funds and investment firms that were subject of the AFM’s investigation have improved their processes to reduce integrity risks (such as money laundering and terrorist financing related risks).
Since an amendment to the Act on the prevention of money laundering and terrorist financing (Wet ter voorkoming van witwassen en financieren van terrorisme, the Wwft) in July 2018, investment funds and investment firms are required to assess and determine their risks of money laundering and terrorist financing. They must also have procedures and measures in place to limit the risks and manage them effectively. In response to a survey from the AFM in 2018, 87% of the investment firms and 97% of the (managers of) investment funds indicated that they had these procedures and measures in place. The AFM wanted to test the existence, design and functioning of these procedures and measures and in May 2019 announced that it would investigate the structure of the processes to limit the risks of integrity violations. In its investigation, the AFM focused on 15 institutions that indicated that they had set up such a process in the 2018 survey.
Based on the results of its investigation, the AFM has now indicated its expectations for proper risk management. The AFM expects all investment funds and investment firms to put their procedures and measures in order with regard to risk assessment. They will be able to do so by carefully considering the AFM’s Wwft Guidelines, putting these guidelines into practice and applying the following principles:
- risks described should not be too general and should focus on the nature and size of the institution;
- risk assessment addresses all risk factors related to:
- the type of client (for example retail / business / politically exposed persons (PEP) / high net worth / non-resident / working in cash intensive sector;
- product, service, transactions (for example cash / real estate / raw materials / high-risk country);
- delivery channel (e.g. direct / non-face-to-face / introduced / intermediaries);
- countries or geographic areas (e.g. sanctioned countries / high-risk countries, Financial Action Task Force (FATF) list / offshore / tax ports);
- risks are realistically estimated by the institution and should not as a standard, without motivation, be estimated as ‘low’;
- policy contains clear, easily accessible procedures for, for example, client risk classification, continuous monitoring and checks with regard to PEPs and sanctions regulations; and
- policies and procedures contain a clear description and assignment of tasks, powers and responsibilities within the institution.
During the COVID-19 pandemic, the AFM calls on financial undertakings to continue to pay extra attention to procedures against (new forms of) money laundering and terrorist financing.