How Unregulated Funds Are Becoming Regulated?

Recent trends indicate a significant shift towards the regulation of unregulated funds, particularly regarding their anti-money laundering (AML) programs. 

With over $3 billion in fines levied globally in the last two months alone, the pressure on these funds to comply is immense. Effective compliance programs must include proper customer identification, due diligence, monitoring, and auditing. 

Unregulated funds in Luxembourg have been  governed by the RAIF Law of 23 July 2016, and  if they are qualified as alternative investment funds (AIFs) under the AIFM Law of 12 July 2013. 

Luxembourg funds may also opt for European labels that offer a marketing passport to the fund’s manager, provided they comply with regulatory requirements. 

These labels include the European long-term investment fund (ELTIF) under Regulation (EU) No. 2015/760, the European Venture Capital Fund (EuVECA) under Regulation (EU) No. 345/2013, and the European Social Entrepreneurship Fund (EuSEF) under Regulation (EU) No. 346/2013. 

Both regulated and unregulated funds are additionally governed by the Companies Law of 10 August 1915, unless superseded by the product laws such as the RAIF Law.

In Luxembourg, unregulated funds report to the Administration des Domaines instead of the CSSF. 

The CSSF’s 2020 review revealed gaps in risk analysis and oversight, emphasising that fund managers must better assess money laundering and terrorist financing risks.

Key Compliance Measures

  1. Fundamentals

Implementing comprehensive customer identification, due diligence, monitoring, and auditing processes is crucial for ensuring compliance. KYC3 provides a fully digitised onboarding portal that simplifies these processes by automating document collection, identity verification, and risk screening. This not only reduces errors but also enhances security and efficiency, ensuring that all compliance requirements are met effectively.

  1. Outsourcing Oversight

Even when outsourcing AML compliance tasks, it’s essential to retain full responsibility. KYC3 offers solutions that allow companies to manage compliance in-house or via third-party services while maintaining control over the process. This includes detailed audit trails and secure data management to ensure that compliance standards are upheld regardless of how tasks are outsourced

  1. Risk-Based Approach

Continuously managing and monitoring investment risks requires a dynamic and proactive approach. KYC3’s AI-powered tools enable continuous risk assessment and monitoring by analysing vast amounts of data to detect potential risks. This approach allows for timely interventions and adjustments to manage emerging risks effectively, providing a robust risk management framework

  1. Sanctions Screening

Daily screening against international sanctions lists is mandatory to avoid regulatory breaches. KYC3 automates this process by integrating data from various official sources such as OFAC, Interpol, UN, and EU. This automation ensures that all counterparties are regularly screened, and any matches are promptly investigated, reducing the risk of dealing with sanctioned entities

Luxembourg-Specific Requirements

Unregulated funds in Luxembourg must annually complete a questionnaire for the Administration des Domaines, outlining their AML strategies. They must also appoint two roles: 

**RR (Responsable du Respect des Obligations)**: Ensures compliance with AML obligations.

**RC (Responsable du Contrôle du Respect des Obligations)**: Controls compliance activities.

Both positions must be reported, and any changes updated promptly.

Effective Compliance Tools

To manage these requirements efficiently, adopting advanced software tools can automate sanction screenings, manage documentation, and ensure all necessary investor information is accessible for audits and regulatory reviews. This approach can enhance compliance without significantly increasing staff.

For more details on compliance solutions, contact us

Top 3

Top 3 Most Stressful Aspects of a Regulatory Site Visit

Unexpected site visits from regulators can be extremely stressful. The ever-changing regulations and laws add to the workload and the need to stay prepared for surprise inspections while maintaining standards.


Since 2008, regulators have imposed more rules and laws, and with the introduction of new regulations like GDPR and DORA, we can expect even more changes ahead.


Each year, the costs of complying with new regulations increase by 10%, making it increasingly challenging to keep up using traditional, non-digitized methods.


In 2018, the Competitive Enterprise Institute released a comprehensive report on the rising compliance costs for large companies.


Here are the top three most stressful aspects of a regulatory site visit and how to address them:


1. Not Having Your Audit Reports Ready

   Keep your audit reports up-to-date and easily accessible. Regularly review and organise your reports to avoid last-minute rushes during a site visit.


2. Having to Print Loads of Documents

   Reduce the need for printing by maintaining comprehensive digital records. A robust document management system enables quick retrieval and sharing of documents with regulators.


3. Discovering Gaps in Your Audit Records

   Conduct regular internal audits to identify and fix any gaps in your records before a regulatory inspection. This proactive approach helps maintain compliance and reduces the stress of unexpected findings.


The New and Improved Way of Automating Reports with KYC3’s Solutions


Integrated System with Full Audit Trails

KYC3’s solutions keep all data in a single integrated system, complete with full audit trails and detailed statistics. Reports are available in real-time, ensuring you’re always prepared.


Generate Reports within Minutes

With KYC3, reports can be generated in minutes rather than hours, thanks to standardised formats and consistent data directly from the system. Data is accessible via API, allowing automatic integration with complex business intelligence and decision support systems.


Streamlined Compliance with a Digital Platform

Using an integrated digital compliance platform, 360-degree view reports are standardised and available at all times. This saves man-days of work annually and ensures consistent and unbiased reporting.


Efficient Auditor Review

Auditors can review configuration rules, results, and audit logs directly on the system, providing a transparent view of how the system was used. This allows for quick empirical observations and immediate addressing of deficiencies, with auditor sign-off for configuration changes achieved swiftly.


Comprehensive and Accessible Records

Analysts can produce detailed records, including documents, assessments, and audit notes for regulators in standard formats at the push of a button. This holistic, transparent, and simplified compliance process ensures that fines for deficiencies or errors are avoided.


By leveraging KYC3’s solutions, the compliance process becomes more efficient, reducing stress and ensuring your organisation is always ready for regulatory site visits.

Onboarding Portal KYC3

Streamlining the Onboarding Process with KYC3: Efficiency and Accuracy

Onboarding counterparties can be one of the most time-consuming activities for companies. From gathering documents via email to dealing with incomplete dossiers and performing manual checks, the entire process demands significant time and attention. KYC3 has revolutionised this process by fully digitising it, providing companies with a portal where counterparties can upload documents and undergo all necessary checks, thereby reducing the risk of errors or missing information.

Benefits of Using an Automated Onboarding Portal

  1. Clear Communication of Document Requirements

– The portal ensures that document requirements are clearly communicated to counterparties, eliminating confusion and reducing delays.

  1. Automated “To-Do” List

   – The digital counterparty identity portal includes an automated “To-Do” list, making it easier for counterparties to upload all necessary documents. This feature speeds up the process and ensures that all required information is provided, reducing the risk of errors.

  1. Enhanced Efficiency and Security

   – With the streamlined process, counterparties experience improved efficiency and security, leading to greater satisfaction and increased business opportunities.

  1. Simplified Compliance Management

   – The compliance manager receives updates about the onboarding status and findings, without needing to manage the entire process manually.

Key Features of the KYC3 Onboarding Portal

Digital Dossier Management

– Centralised and organised document management for easy access and review.

Real-Time Video Onboarding

  – Allows for immediate and interactive onboarding sessions.

AI-Powered ID Analysis

  – Advanced technology for accurate identity verification.

Automated Risk Screening Engine

  – Efficiently identifies and mitigates potential risks.

Secure and Customizable

  – Options for on-premise or hosted solutions to meet specific security and customization needs.

Compliance with Regulations

  – Fully compliant with AMLD5, GDPR, BSA, and PSD2, ensuring adherence to international standards.

No more back-and-forth emails, calls, or unreliable tools for risk management. The KYC3 onboarding portal offers a streamlined, efficient, and secure solution that benefits both companies and their counterparties. By automating the onboarding process, companies can focus on growing their business and building stronger relationships with their partners.