Pino-Sun Becker, Group Head of Compliance & Risk at ACOLIN, says that with growing pressure on fund promoters to ensure appropriate anti-money laundering oversight over the distribution channels they use, the regulatory role of global distributors such as ACOLIN can play a critical role in providing this essential service and consequential regulatory reporting to the fund.
What business and regulatory challenges do global distributors currently face?
Global distributors have a challenging role. Under a mandate from a fund delegating all distribution activities, they can decide which distribution channels are best suited to reach the fund’s target market and to increase its assets under management. In such cases, the global distributor is listed in the fund’s prospectus and is subject to oversight by the financial regulator in the fund’s domicile jurisdiction, in most cases the Luxembourg’s CSSF or the Central Bank of Ireland. The fund’s promoter is trusting a single provider to ensure that the fund continues to attract assets as expected and to monitor closely the distribution channels it uses. The pressure has been stepped up in Europe with the implementation of MiFID II, with management companies and distributors required to put in place and administer a range of complex oversight requirements, including negative target market reporting and inducement reports.
What stance has Luxembourg’s CSSF taken?
The CSSF has taken a lead with its Circular 18/698, which imposes new requirements regarding the oversight of distribution and reporting on this to the regulator. Director General of the CSSF, Claude Marx warned participants at a conference on cross-border distribution last autumn that the industry still has weaknesses in customer due diligence processes and practices, emphasising the critical importance of anti-money laundering measures. Underlining to fund firms that they are liable for any failings in the due diligence conducted by their distribution partners, Marx has placed Luxembourg’s fund industry under intense pressure to deliver solutions. Due diligence information is becoming a valuable commodity, and being able to access and manage it is critical.
How does ACOLIN tackle due diligence and risk assessment?
Over the past 10 years ACOLIN has built up a multijurisdiction distribution network ensuring its clients may overcome many of the challenges relating to cross-border fund distribution. A key element has involved creating a comprehensive set of procedures to assure oversight of the distribution network, to make sure our partners comply with industry KYD standards. Given the wide range of distribution channels within our network, due diligence procedures are customised to reflect different types of partners and distribution activities. Participating in industry workshops not only ensure we remain up to date, but also allow us to help form the face of distribution oversight within the industry. We maintain more than 250 relationships with distributors at a global level, each, providing access to their own networks and thereby creating a distribution network stretching to thousands of entities.
What processes do you conduct to develop risk assessments?
Maintaining oversight over our many distribution relationships is not simple, but through our due diligence process and a comprehensive digital platform for the collection of data, we ensure we only conduct business with parties in full compliance with applicable regulatory requirements. Having collected and managed the data, we match it against official sanction lists and screen ultimate beneficial owner data, and using a set of well-defined parameters calculate a risk rating, which has become the standard for the clients for which we act as global distributor. Since 2015 we have provided our asset manager clients with the reporting they need on the network we manage for the distribution of their products.
What does ACOLIN's distributor reporting cover?
We provide a quarterly reporting to our clients to ensure they receive a detailed overview over our distribution network. Changes to the distribution partners which form part of our distribution network, changes in their respective risk scorings, additional oversight measures taken, details of client complaints, legal disputes and regulatory infringements or investigations and FATCA information – all form part of our regulatory, even tailor-made reporting. In addition to the above, ACOLIN provides the necessary CSSF Reporting for dedicated clients established in Luxembourg and under the supervision of the CSSF, in accordance with the standards as set out in CSSF Circular 18/698, including additional data to fit the clients needs. In close co-operation with our clients, we have established a reporting system that meets not only the respective regulatory requirements of but the specific needs of our clients, ensuring all anti-money laundering and financing of terrorism oversight data is available on demand, and is of a standard asset managers can trust.