Nominee Intermediary Arrangements in Luxembourg AIFs: Best Practices

Luxembourg’s alternative investment fund (AIF) sector, a cornerstone of Europe’s financial landscape, faces evolving challenges in anti-money laundering (AML) and counter-terrorist financing (CFT) compliance. Among these, nominee intermediaries – entities holding assets on behalf of underlying investors – require meticulous oversight to align with Luxembourg’s stringent regulatory framework. For Responsables du Respect (RRs) and Responsables Compliance (RCs), balancing operational efficiency with robust due diligence is critical.

1. Legal Framework and Due Diligence Obligations

Under Luxembourg’s AML/CFT Law (Law of 12 November 2004, as amended), AIFs and their managers must apply a risk-based approach to intermediaries, including nominees. While nominees often act as regulated entities, the Commission de Surveillance du Secteur Financier (CSSF) emphasises that reliance on a nominee’s regulated status alone is insufficient¹.

Key obligations include:

• Beneficial Ownership Verification: Even where nominees hold shares, AIFs must identify and verify the ultimate beneficial owners (UBOs) of the underlying investors. This aligns with Article 3(1)(b) of the AML/CFT Law, which mandates “reasonable measures” to understand ownership structures².
• Risk-Based Enhanced Due Diligence (EDD): High-risk scenarios – such as nominees from jurisdictions flagged in several CSSF Circulars or those linked to politically exposed persons (PEPs) – require enhanced scrutiny, including source-of-funds checks and ongoing monitoring³.

2. Contractual Safeguards and Delegation Oversight

The CSSF’s Sub-Sector Risk Assessment for Collective Investments (2022) highlights that AIFs delegating AML/CFT tasks to nominees must ensure contractual clarity. CSSF Circular 18/698 mandates written agreements specifying:

• The nominee’s obligation to transmit investor due diligence data to the AIF or its manager⁴.
• Rights for the AIF to conduct audits or on-site inspections of the nominee’s AML/CFT processes⁵.

Notably, the Autorité Enregistrement et de Déontologie (AED) reaffirms that ultimate responsibility for compliance remains with the AIF’s RR and RC, even when using third-party nominees⁶.

3. Industry Guidelines: Mitigating Layered Risk

Luxembourg’s fund industry guidelines recommend:

• Proportionality in Oversight: For low-risk nominees (e.g., EU-regulated banks), periodic reviews of their AML policies may suffice. For higher-risk cases, a “look-through” approach to underlying investors is advised⁷.
• Technology Integration: Leveraging platforms like the CSSF’s electronic filing system (eDesk) for real-time reporting of suspicious transactions ensures alignment with the Financial Intelligence Unit (FIU)’s GoAML portal⁸.

Luxembourg’s regulatory landscape demands vigilance in managing nominee intermediaries. By adopting risk-tailored due diligence, and securing enforceable contractual safeguards, RRs and RCs can navigate this complexity effectively. Proactive engagement with CSSF guidelines and sectoral risk assessments remains indispensable to safeguarding Luxembourg’s reputation as a fund jurisdiction of trust.

References

1. CSSF, Circular 18/698, specific provisions on AML/CFT Obligations for Investment Fund Managers, 23 August 2018 (amended 2023), Link. 
2. Law of 12 November 2004 on AML/CFT, Art. 3(1)(b), CSSF host page re latest consolidated version: Link. 
3. CSSF, Circular CSSF 22/822 FATF statements concerning
   • 1) high-risk jurisdictions on which enhanced due diligence and, where appropriate, counter-measures are imposed
   • 2) jurisdictions under increased monitoring of the FATF Link. 
4. CSSF, Sub-Sector Risk Assessment for Collective Investments, 2022, Link. 
5. AED, FAQ on AML/CFT for RAIFs, March 2023, Link. 
6. CSSF Regulation No. 12-02, Art. 40(3), 14 December 2012 (amended 2020), Host page Link; Text. 
7. ALFI, Opinion on the EU AML Package, November 2021, Link. 
8. Luxembourg FIU, GoAML Platform Guidelines, 2024, Link.