Luxembourg's Commission de Surveillance du Secteur Financier (CSSF) has published its 2025 thematic review on Counter-Proliferation Financing (CPF), revealing significant gaps in how supervised entities manage proliferation risks. The review provides essential guidance for compliance professionals operating in the Grand Duchy.

Key Findings

The CSSF examined 45 supervised entities across banking, investment funds, and payment institutions. Key observations include: insufficient integration of CPF into overall risk assessments, limited awareness of dual-use goods and technologies, gaps in sanctions screening for proliferation-related designations, and inadequate staff training on CPF typologies.

Proliferation Financing Explained

Proliferation financing refers to providing funds or financial services for the manufacture, acquisition, or development of weapons of mass destruction (WMD) and their delivery systems. UN Security Council resolutions require financial institutions to prevent such financing, particularly regarding North Korea and Iran.

CSSF Expectations

The regulator expects supervised entities to: explicitly address CPF in their business risk assessments, implement specific screening against proliferation-related sanctions lists, train staff to identify red flags associated with WMD proliferation, and maintain policies that address dual-use goods financing.

Practical Implementation

Compliance teams should review their AML/CFT frameworks to ensure CPF is adequately addressed. This includes updating risk assessment methodologies, enhancing transaction monitoring rules for proliferation indicators, and conducting targeted training for relationship managers in relevant sectors.

Sector-Specific Considerations

For banks: Focus on trade finance transactions involving sensitive goods. For fund managers: Review portfolio companies for exposure to proliferation-sensitive industries. For payment institutions: Enhance screening for patterns associated with procurement networks.

Next Steps

The CSSF expects entities to conduct gap analyses against the review's findings and implement remediation where needed. Supervisory examinations will increasingly focus on CPF controls, making proactive compliance essential.