EMEA AML Survey 2024 - Luxembourg competing for effectiveness

After the release of the first PwC Europe, Middle East, and Africa (EMEA) AML Survey in April 2024, PwC now explores the results with a focus on Luxembourg. The survey results reveal that Luxembourg needs to step up its effectiveness in the face of increasing international competition, and the report looks at the path forward in terms of people, technology and regulatory changes to strengthen the fight against financial crime.

The Luxembourg AML survey 2024 – Luxembourg competing for effectiveness had a broad coverage of AWM and Banking respondents, offering an in-depth analysis of responses from across the Grand Duchy. The results reflect that Luxembourg continues to excel in AML efforts, but it must streamline certain operations to maintain its leading position.

In recent years, regulators in Luxembourg, the European Union (EU), and beyond, along with international organisations like the Financial Action Task Force (FATF), have begun shifting their approach to regulating Anti-Money Laundering (AML) practices, placing greater emphasis on effectiveness. While AML compliance primarily focused on the existence of AML systems, more recent initiatives are now assessing the effectiveness of these measures and exploring how they can be optimised to significantly contribute to the fight against financial crime.

Deep diving into the responses from Luxembourg respondents, key findings of the survey include the following (amongst others):

Regulations: A call for clarity

• Luxembourg respondents are more sceptical of current and upcoming AML rules than their EMEA counterparts. Only 22% of Luxembourg respondents believe that current and upcoming AML rules are fully effective. Meanwhile, 53% of EMEA respondents are confident in current rules and 54% in upcoming rules;
• 90% of Luxembourg respondents believe implementing universal regulatory standards would significantly improve AML effectiveness.

Operations: Human and machine resources

• AML costs in Luxembourg have increased by 18% over the last two years, compared to 13% in the rest of EMEA. 69% of Luxembourg respondents have seen their AML costs increase by at least 10% while 31% have seen them increase by at least 30%;
• Luxembourg respondents believe Customer Due Diligence (CDD) is the strongest AML control, contrary to the widely held EMEA view that CDD is ineffective;
• Luxembourg respondents tend to believe upskilling their staff is the least effective AML control, with 38% reporting as much. This suggests Luxembourg respondents are undervaluing the positive impact of upskilling their employees as a measure to boost effectiveness and solve the labour scarcity issue they face;
• Recruiting skilled staff is one of the biggest AML operational challenges in Luxembourg, according to 44% of respondents. For comparison, only 24% of EMEA and 25% of EU respondents cite this as an AML challenge. Having skilled staff is necessary for any increase in AML effectiveness.

Technology: A key to effectiveness

• Legacy AML operating systems are a persistent problem in Luxembourg. 38% of Luxembourg respondents claim their systems are “outdated”;
• Luxembourg AML teams tend to be more reluctant to adopt new technologies than their EMEA counterparts. Only 13% of Luxembourg respondents have implemented cloud solutions compared to 53% in EMEA. Similarly, only 53% in Luxembourg are considering adopting AI compared to 81% in EMEA;
• Besides being disinclined to adopt new technology, Luxembourg respondents are also reluctant to invest in it, with banks being the least willing to invest. 13% of respondents say they will not allocate any of their AML budget to new digital tools over the next two years. This figure is 5% in the rest of EMEA. Meanwhile 42% of Luxembourg respondents will allocate over 10% of their budget to digital tools, compared to 56% that will do the same in EMEA.

CSSF (Commission de Surveillance du Secteur Financier) Director General Claude Marx stated: “Overall, when it comes to AML and CTF, Financial Institutions are not yet making optimal use of technology that would allow significant efficiency gains. As the survey also shows, many supervised entities use outdated systems when it comes to AML/CTF. This will hopefully change with new possibilities offered by powerful generative AI tools, that are becoming mainstream.”

Michael Weis, Anti-Financial Crime Leader at PwC Luxembourg  stated: “In recent years other financial centres have been increasing their footprint in the AWM industry as fund domiciles, particularly for exchange-traded funds (ETFs). Luxembourg must continue to assert itself as the main European financial hub; effective and efficient AML is a crucial part of this process. Given the intricate nature of Luxembourg’s financial landscape, specialised AML operations are essential. This necessity, however, presents an opportunity for Luxembourg to distinguish itself. By routinely standing out in the most complex and technical aspects of AML, Luxembourg can continue to solidify its status as a premier centre of excellence in the financial sector.”

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