• Funds Management and Hedge Funds

    Some services provided by fund managers and hedge funds are attractive to criminals wanting to launder the proceeds of crime and to finance terrorism.

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Funds Management and Hedge Funds

What are the ML/TF Risks?

Fund management includes both discretionary and advisory management of segregated portfolios of assets (securities, derivatives, cash, property etc.)

Discretionary managers are given powers to decide upon stock selection and to undertake transactions within the portfolio as necessary, according to an investment mandate agreed between the firm and the customer.

Advisory relationships differ, in that, having determined the appropriate stock selection, the manager has no power to deal without the customer’s authority. In some cases, the customer will execute their own transactions considering the manager’s advice.

The Money Laundering and Terrorism Financing (ML/TF) risks associated with fund management include:

  • Funds (incoming and outgoing) maybe handled by a third party, such as a custodian or administrator;
  • Unexpected inflows/outflows, including third party payments;
  • Use of offshore trusts and companies as investment vehicles by customers to conceal beneficial ownership;
  • Difficulty in identifying beneficial owners;
  • Complexity of financial services and products offered may confuse the audit trail;
  • Customers that are or are associated with Politically Exposed Persons (PEPs); and
  • Customers from higher risk jurisdictions.

Fund managers must ensure the organisation conducts a comprehensive ML/TF risk assessment to identify, assess, mitigate and manage ML/TF risk exposures as a critical first step in complying with AML/CFT laws.

What are the AML/CFT obligations?

In developing responses to obligations under AML/CFT laws and regulations the following steps must be undertaken:

  • Conduct a Money Laundering and Terrorism Financing Risk Assessment;
  • Develop an AML Program that is proportionate to ML/TF Risks;
  • Establish effective Board and Senior Management oversight of the AML/CFT Program;
  • Appoint an AML Compliance Officer;
  • Establish a Customer Due Diligence (CDD) Program including collection and verification of know your customer (KYC) information including Enhanced and Ongoing CDD controls;
  • Implement a ML/TF Risk Awareness Training Program for staff;
  • Implement a monitoring program to identify unusual and possibly suspicious customer activity, transactions and behaviour;
  • Establish a process to report suspicions and other activity specified by AML/CFT law and regulation;
  • Establish Record-keeping controls; and
  • Maintain the ML/TF Risk Assessment and the AML Program as the business and risks change.

How can AML Accelerate help?

AML Accelerate, drawing on unparalleled expertise and real-world experience, has developed an AML/CFT Program Manual for the funds management industry.

Our solutions deliver all the foundational AML/CFT materials including a ML/TF Risk Assessment, an AML/CFT Program, CDD Standards, and an AML Operating Manual, which you can tailor to your specific needs, ensuring your AML/CFT controls are commensurate with your business.

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