Fund managers in the Netherlands urged to up anti-money laundering and sanctions compliance

In April 2023, the Authority for Financial Markets (Autoriteit Financiële Markten) (AFM) published the results of its annual survey of undertaking for collective investment in transferable securities (UCITS) and alternative investment fund (AIF) managers regarding compliance with the Dutch Anti-money Laundering and Terrorist Financing (Prevention) Act (Wet ter voorkoming van witwassen en financieren van terrorisme) (AMLA) and Sanctions Act (Sanctiewet) 1977. These findings are important to managers of UCITS and of AIFs, including those that are sub-threshold.

In its report, the AFM identified three anti-money laundering (AML) areas in which fund managers can improve their compliance practices around transaction monitoring, training, and sanctions regulation.

Transaction monitoring

Under Article 16 AMLA, fund managers are required to notify unusual transactions to the Dutch Financial Intelligence Unit (FIU-NL) as soon as possible. The AFM has three recommendations.

First, according to the AFM, fund managers should take stricter measures when it comes to transaction monitoring under article 16 AMLA. While the AFM's 2022 survey indicated that fund managers have improved their transaction monitoring practices since 2020, only 11% generated alerts for unusual transactions in 2021. In total, 51,861 transactions triggered an alert; of those 226 were notified to the FIU-NL. This was below the expectations of the AFM, which is expected to monitor transaction monitoring standards more strictly.

Second, the AFM recommends that fund managers register with the FIU-NL immediately. According to the AFM's survey, around half of fund managers are currently registered with the FIU-NL. While a registration is in itself not required under the AMLA, not registering can cause an undue notification delay, which is not allowed under article 16 of the AMLA.

Third, the AFM recommends that fund managers make use of technical aids for transaction monitoring purposes, such as making transaction profiles for all of their clients. These are profiles of the expected types of transaction with which a client (within the meaning of the AMLA) will engage. When a transaction does not fit within a transaction profile, it can be assessed and, where necessary, be reported with the FIU-NL as an unusual transaction. More than half (56%) of fund managers surveyed had created transaction profiles for their clients.

Compliance training

The AFM also made recommendations regarding AML compliance training. Fund managers are required to give AMLA training to both daily policymakers and employees, pursuant to article 35 AMLA. Additionally, the Sanctions Act and article 2 of the Sanctions Act Supervision Regulation (Regeling Toezicht Sanctiewet) 1977 require fund managers to establish a system of administrative organisation and internal controls ensuring compliance with the Sanction Act. This generally includes Sanctions Act compliance training for employees and daily policymakers.

The AFM noted that there had been some improvement, particularly with regard to training employees: 75% of fund managers trained their employees in AMLA compliance and 73% in Sanction Act compliance, which is an 8% increase from 2020.

There remains room for improvement, especially for daily policymakers, according to the AFM. Only 44% and 39% of policymakers received training regarding AMLA and Sanctions Act compliance respectively. While this is an increase from the previous survey, the AFM is encouraging fund managers to ensure that their personnel, particularly their daily policymakers, receive regular AMLA and Sanctions Act compliance trainings.

Sanctions compliance

The Sanctions Act and Article 2 of the Sanctions Act Supervision Regulation oblige fund managers to screen their clients using three sanctions lists: the UN, EU, and Dutch national sanctions lists. However, only 68% of survey respondents made use of all three lists. Not only are fund managers obligated by law to use all three lists, but failing to do so increases the risk of unintentional violations of sanctions.

However, despite the overlap between the lists, they are not updated at the same frequency. The EU-list implements UN sanctions, but these are not immediately placed on the EU-list. This creates a risk that UN sanctions are violated if only the EU list is consulted.

New sanctions levied against Russian individuals make the use of each of the three lists all the more important, and the AFM has strongly urged fund managers that are not already complying with their screening obligations to do so immediately. Information on which countries the EU sanctions apply to can be found on the European Commission's online sanctions map.

Osborne Clarke comment

As shown by the survey results, it is essential that fund managers at all times remain aware of their AML and sanctions compliance obligations.

In light of the AFM's report, it is important that fund managers ensure that they have transaction monitoring mechanisms in place in which they can make use of technical aids (such as transaction profiling) and register with the FIU-NL, so that unusual transactions are consistently reported as soon as possible.

Fund managers should also require that both employees and policymakers receive AMLA and Sanctions Act training policy on a consistent basis. And they should also screen clients against UN, EU, and Dutch national sanctions screening lists.

Despise these points of concern, the survey results overall highlighted the many improvements fund managers have made in their AMLA and Sanctions Act compliance since 2020. Because of these improvements, the AFM will now conduct surveys biannually rather than annually.