EBA ¦ Money Laundering and Terrorist Financing Risks in Collective Investment Schemes and Fund Managers
Money Laundering and Terrorist Financing Risks in Collective Investment Schemes and Fund Managers: Insights from the EBA 2025 Opinion (EBA/Op/2025/10) and Report (EBA/REP/2025/22)
The European Banking Authority’s 2025 Opinion on money laundering (ML) and terrorist financing (TF) risks within the EU financial sector highlights significant developments and challenges related to collective investment schemes and fund managers. These entities, which play a crucial role in managing assets on behalf of investors, face evolving ML/TF risks driven by changes in financial markets, regulatory expectations, and emerging criminal tactics.
Emerging Risk Landscape for Collective Investment Schemes and Fund Managers
Collective investment schemes and fund managers operate in a complex environment where the nature of risks is shifting. While historically customer-related risks (such as dealing with politically exposed persons or high-risk jurisdictions) were the main focus, the 2025 Opinion notes a notable shift: risks associated with products and services are now surpassing those linked to customers. This reflects the growing complexity of investment products, cross-border fund distribution, and innovative financial instruments that may be exploited for laundering or financing terrorism.
Fund managers increasingly offer diverse investment vehicles, including those with cross-border structures and multiple layers of intermediaries. This complexity can obscure beneficial ownership and complicate due diligence processes. Furthermore, certain schemes may be used for residency-by-investment programs, which carry specific ML/TF risks due to the potential for misuse by illicit actors seeking to obtain residency or citizenship through investment.
AML/CFT Controls and Challenges
The report identifies that collective investment schemes and fund managers have made progress in strengthening their AML/CFT frameworks. Enhanced supervisory tools have been introduced, such as improved beneficial ownership verification and increased oversight of cross-border fund management structures. These measures aim to reduce vulnerabilities arising from opaque ownership chains and complex jurisdictional arrangements.
However, breaches in this sector remain predominantly linked to shortcomings in customer due diligence (CDD). Common issues include incomplete identification and verification of investors, inadequate ongoing monitoring, and insufficient risk rating accuracy. These weaknesses can allow suspicious activities to go undetected or inadequately escalated within firms.
Moreover, resource limitations and varying levels of AML expertise across fund managers contribute to inconsistent application of controls. The rapid growth of certain fund types, alongside the adoption of new financial technologies, further pressures existing compliance frameworks.
Supervisory Actions and Industry Engagement
Supervisory authorities have increased their engagement with collective investment schemes and fund managers. Off-site reviews and on-site inspections have been employed to assess internal control effectiveness, particularly focusing on transaction monitoring systems and governance structures.
Training initiatives have been organized to raise awareness about specific ML/TF risks relevant to the sector. These include risks associated with residency-by-investment schemes, complex fund structures, and new product innovations.
Supervisors also emphasize the importance of integrating anti-corruption measures within AML/CFT frameworks, acknowledging that corruption-related risks remain under-addressed despite their significant link to money laundering within investment sectors.
Recommendations and Outlook
The EBA Opinion stresses the need for fund managers and collective investment schemes to adopt robust, risk-based AML/CFT systems that keep pace with evolving threats. This includes strengthening CDD procedures, ensuring accurate beneficial ownership information, and enhancing transaction monitoring capabilities to detect complex laundering patterns.
It also calls for continued cooperation between competent authorities across Member States to harmonize supervisory approaches, particularly given the cross-border nature of many funds. The responsible use of regulatory technology (RegTech) is encouraged to improve compliance efficiency, but with caution against over-reliance on generic solutions that may not fit sector-specific needs.
Dive deeper
- EBA ¦ EBA/Op/2025/10 Opinion and EBA/REP/2025/22 Report on ML and TF risks affecting the EU’s financial sector ¦ Link