AML, Beneficial Ownership and Sanctions


Anti-money laundering (AML), Beneficial Ownership (BO) and sanctions compliance continue to come under scrutiny from regulatory bodies, with key drivers including evolving domestic and international regulatory requirements, global political pressures, and work carried out by organisations such as the Financial Action Task Force, the European Commission and the US Financial Crimes Enforcement Network (FinCEN).

Current work:

In the European Union, the European Commission has now introduced its AML legislative package, in the form of four legislative proposals:

  1. A regulation establishing a new EU AML/CFT Authority (the so-called ‘AMLA’);
  2. A regulation on AML/CFT (the ‘AMLR’), which contains directly applicable rules, including in the areas of customer due diligence and beneficial ownership;
  3. A sixth AML/CFT Directive (‘AMLD6’ or ‘FIU Directive’), replacing the fourth AMLD as amended by the fifth AMLD, which focuses on recasting the supervisory arrangements; and
  4. A revision of the 2015 Regulation on transfers of funds, to include crypto-assets (the ‘Crypto Proposal’).

A summary of the proposals is available for members here.

The European Commission has opened calls for feedback on all proposals which are open until 18 and 29 November 2021. AIMA, in collaboration with members, has produced a position paper on the AMLR. In the paper, we are calling for targeted amendments to the AMLR which we believe takes into consideration the speficities of the asset management industry and would introduce a greater level of proportionality while still ensuring that the proposed requirements achieve their objectives. In particular, our main arguments are:

  • To maintain current focus on collective investment undertakings (i.e., funds) as the appropriate obliged entities and only bring in scope the fund management company where the fund does not have a separate legal personality;
  • Fund administrators, fund managers and other service providers should continue to be allowed to perform the activities that the AMLR proposes to be no longer be able to be outsourced by the obliged entity as this would otherwise result in a significant disruption of current, and well-functioning CDD practices that exist within the alternative investment industry; and
  • Remove the requirement for all obliged entities to have an independent audit function and retain the current proportionate approach as adopted under AMLD4 as this would otherwise be highly disproportionate on the majority of obliged entities.

Through the AML package the European Commission will be seeking to strengthen public and private partnerships and explore information and data sharing among member states, financial institutions and third parties. In a White Paper on Improving AML/KYC/CTF Due Diligence Processes: Centralisation and the Benefits of a Digital Solution, AIMA introduced a range of options to create efficiencies within the CDD process, including the utilisation of centralised due diligence processors and the creation of digital IDs. 

The European Commission has also published a legislative proposal to establish a framework for a European Digital Identity to which AIMA has responded. AIMA has published a summary of the proposal. The Digital ID will offer flexibility and solutions for the financial sector to allow identification of customers and exchange specific attributes necessary to comply with CDD requirements under the upcoming AML Regulation. After working with members to prepare a position paper, AIMA will seek to engage with the European Council and European Parliament during their negotiations to ensure financial entities are allowed to place reliance on third party entities performing CDD.

In the U.S., FinCEN has published a notice of proposed rulemaking (NPRM) to implement the beneficial ownership reporting provisions of the Corporate Transparency Act. Earlier this year FinCEN sought views on its advanced notice of proposed rulemaking (ANPRM) which AIMA responded to. Our main argument was to expand the scope of exempt reporting entities to also include all domestic and foreign pooled investment vehicles relying on Sections 3(c)(1) or 3(c)(7) of the Investment Company Act of 1940, as amended, that are managed by a registered investment adviser, a "private fund adviser" as defined in Section 203(m) of the Investment Advisers Act of 1940, a registered commodity trading advisor or an exempt commodity trading advisor. Comments on the NPRM are due 7 February 2022.

The European Banking Authority proposed a set of draft guidelines relating to customer onboarding which are designed to set common EU standards on the development and implementation of sound, risk-sensitive initial CDD processes in the remote customer onboarding context.  The guidelines will apply to all financial sector operators that are within the scope of the AMLD. Comments are due by 10 March 2022.

Upcoming actions:

1 January 2022, FinCEN beneficial ownership disclosure requirements to enter into force.

7 February 2022, comments on FinCEN NPRM on beneficial ownership reporting due

10 March 2022, comment on EBA draft guidelines of the use of remote customer onboarding solutions due

(Last updated: 5 January 2022)