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Sanctioned Countries, Investment Funds and Know Your Customer

Updated: Apr 13, 2019

Redemptions from customers can destabilise a fund. In the case of money market funds preventing this is particularly important as investors tend to be large, institutional funds.

In the case on Constant and Low Volatility NAV funds, there is also the matter of one investor or set of investors walking away with a redemption at constant NAV when the market value based NAV is, in fact, lower than the constant.

To be able to watch out for such situations, and possibly manage them, the Money Market Fund

Regulation requires the Fund Manager to know the customer deeply.

The reporting template which forms part of the technical advice and standards specified by ESMA that accompany MMFR asks for country of the investor in A.7.4.

It also asks (elsewhere) to look through to the ultimate beneficial owner behind the investor.

From a money laundering perspective both of those are necessary to be completed. In fact, in Funds the following checks are relevant from a money laundering perspective:

1. A Fund that has a limited number of investors, to the point that is meant to provide structure to their investment intent is a red flag

2. Concealing identity by creating an investment company is a red flag

3. Investing through funds to conceal identity or source of funds is a red flag

4. UBO awareness in fund investments is a high priority given the inherent nature of Funds as a structure.

The reporting template under MMFR gives the option of “estimate if no precise information is available” for some of the Know Your Customer requirements.

A Fund Manager that takes that option – does it really know all that it needs to know about its customer’s background?

And if the country is a FATF or OFAC mandated country, what then?

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