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Dutch investment firms and AML: room for improvement

09 February 2019
Banking & Finance - Fraud & white collar crime - Enforcement and Sanctions

Research carried out by the Netherlands Authority for the Financial Markets (Stichting Autoriteit Financiële Markten, “AFM”) in the second and third quarter of 2018 shows that investment firms have insufficient knowledge of the requirements imposed by the Money Laundering and Terrorist Financing (Prevention) Act (Wet ter voorkoming van witwassen en het financieren van terrorisme, “Wwft” (Counter Terrorism Financing “CTF”)) and the Sanctions Act 1977 (Sanctiewet 1977, “Sw”). As a result, the investment firms do not fully live up to the requirements of operating proper Anti Money Laundering (“AML”) policies and procedures.

According to the AFM, investment firms must prevent criminals from money laundering and also prevent persons or organizations who are subject to sanctions to participate in the financial markets. As part of this compliance, companies should a enforce AML policies and procedures internally, and these need to be evaluated and tested on a regular basis.

Insufficient knowledge about the Money Laundering and Terrorist Financing (prevention) act

According to the research, in which 289 investment firms participated, a sufficient part of the market does not understand various elements of the requirements in the Wwft. This includes:

  • Insufficient knowledge of Wwft-terms – what is meant by important terms, such as ‘client’ and ‘transaction’, in the Wwft. Many of the investment firms interpret these terms to a limited extent. The AFM explains this in the revised guideline (only available in Dutch) of July 2018. The AFM website also provides answers to frequently asked questions (only available in Dutch) regarding Wwft terms.
  • Insufficient supervision and training – Despite the fact that it is mandatory, only half of the inspected investment firms provide training to their employees and policymakers to make them aware of the provisions of the Wwft.
  • Insufficient reporting – Despite an upward trend, investment firms are still not reporting all unusual transactions with the Financial Intelligence Unit Netherlands (“FIU”)
  • Insufficient client monitoring – The research also shows that a quarter of the investment firms do not monitor the transactions of their clients. A periodic audit of clients on a sanction list is only conducted by one quarter of the inspected investment firms, while surprisingly three quarters of these audits are carried out with new clients.
  • As a consequence of the inadequate compliance of investment firms with the Wwft and Sw, the AFM will tighten up the supervision. This means, among other things, that the AFM will carry out more research regarding Wwft requirements. For example, extra attention will be paid to the obligation to report unusual transactions to the FIU.

The AFM have already met with several investment firms, managers of investment institutions and industry associations regarding compliance with the Wwft and Sw. There are also examples (only available in Dutch) of unusual transactions on the website of the AFM, so that institutions can better identify them.

How Ploum can help

Should you have any questions regarding this update or the Wwft in general, please do not hesitate to contact one of our specialists