Luxembourg’s financial watchdog CSSF has disclosed that about 86,000 investor accounts, primarily belonging to everyday retail investors across Europe, are currently frozen in the Grand Duchy. This situation, affecting over 8 percent of total investors, is mainly due to the financial institutions’ failure to conduct adequate due diligence.
Marco Zwick, the CSSF’s director overseeing investment funds, acknowledged this issue at a recent industry conference. He noted that many accounts were blocked following anti-money laundering (AML) checks, but clarified that these blocks often aren’t related to AML concerns. Zwick announced that the CSSF is preparing new guidelines for the sector to resolve these account issues.
“A lot of the blockings have nothing to do with AML. We will come out with further guidance,” Zwick told an industry conference on Tuesday, adding that CSSF looks forward to working closely with industry working groups on this topic.
This problem was also highlighted in a recent probe by the Financial Action Task Force (FATF), the leading global AML agency. In September, the FATF criticized the “inadequate customer due diligence” by financial institutions in Luxembourg, affecting a significant number of investors, including those in Luxembourg collective investment schemes. The CSSF is now taking steps to address this issue, emphasizing collaboration with industry groups to ensure investor protection and compliance.
Blocked accounts in Luxembourg
The relatively high level of frozen investor accounts is another example of the financial sector’s overzealous and disproportionate drive to appear to be doing what the government is requiring it to in fight money laundering and financial crime. In the Netherlands for example, banks have inundated financial intelligence units with AML reports in such a way that judiciary authorities are unable to handle the masses of data thrown at them.
The issue of blocked accounts was one of three points of industry criticism that Zwick tabled at the conference of the Association of Luxembourg’s Fund Industry, Alfi. Terrorism finance is another topic on which the industry was criticised by the supervisor.
CFT need better understanding
“Not that we would want to finance terrorism, but the team felt that more needs to be done in terms of understanding, in terms of education,” said Zwick, referring to the recommendations made by the FATF. Like on the blocked accounts, more guidance on CFT measures will come from CFF, Luxembourg’s financial intelligence unit and other authorities in Europe and Luxembourg.
Third point of criticism from the FATF was directed more towards the supervisor itself. Zwick said that CSSF was criticised for being too nice with the industry when it comes to publishing sanctions.
“We should be more exhaustive in publishing shortcomings of companies,” Zwick said. “When we publish, we need to make clear it is AML or CFT-related and add more details so that the market gets better knowledge and can learn from the case.
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- CSSF held back Alter Domus fine announcement for a year