The sector in brief
A fund administrator performs the back-office tasks of a fund: calculating the net asset value, keeping the register of investors, processing subscriptions and redemptions and producing reports. Many also carry out investor due diligence and sanctions screening on behalf of the fund or its manager.
That means the administrator is often where AML checks actually happen. If the administrator does them well, the fund is protected. If not, the fund and its manager may not know, because the work was delegated.
Supervisors therefore look at who is responsible for what. Delegation is allowed in most cases, but it has to be written down, tested and overseen. The administrator has its own duties and the fund and manager keep theirs.
Where the risk sits
Delegated checks with unclear ownership
When the manager believes the administrator is checking investors and the administrator believes the opposite, checks are missed.
Subscriptions from unclear sources
The administrator sees money arrive and has to decide whether to accept it. Payments from third parties are the most common problem.
Redemptions to third parties
Paying proceeds to someone other than the investor, or to a different country, is a typical exit route for illicit funds.
Investor register accuracy
An inaccurate or incomplete register, especially where nominees are used, weakens everyone's ability to see who owns the fund.
Volume and pressure
Processing many investors at deadlines can lead to checks being rushed or skipped.
Who supervises you
Fund administrators are supervised by the authority that licensed them. The Capital Markets Authority lists fund administrators among its regulated firms, and administrators in a financial free zone are supervised by that zone's regulator. Funds and administrators are often in different jurisdictions, so look carefully at your own licence.
The supervisor decides the detailed rules for your licence category, so always read its current guidance alongside this page.
What supervisors expect
- A compliance officer or MLRO who understands fund operations and has authority to hold a subscription or redemption.
- A business risk assessment that considers the funds administered, the investor base and the countries involved.
- Written agreements with each fund or manager that state who does which AML tasks and how results are shared.
- Investor due diligence, including beneficial owners, source of funds and source of wealth where the risk calls for it.
- Sanctions and politically exposed person screening of investors and payments, with documented review.
- Controls over redemption payments, particularly to third parties and other countries.
- Reporting through goAML, training, record keeping and independent testing, including testing of work done for clients.
Red flags to watch
- A subscription paid from an account in a different name.
- A request to redeem and pay to a different person or country shortly after investing.
- An investor who changes bank details just before redemption.
- Delays in providing documents, followed by pressure to process quickly.
- A manager who asks the administrator to accept an investor without the usual checks.
- A register with many investors that have identical addresses or contact details.
A worked example
A change of bank details just before redemption
An investor in a fund asks for a large redemption and, in the same message, changes the payment details to an account in another country in the name of a company. The administrator's controls stop the payment. It asks for evidence that the new account belongs to the investor, speaks to the manager and records the response. If the explanation is not credible, it keeps the payment on hold and the compliance officer considers a report. A redemption that goes out unchallenged is the kind of failure that supervisors write about.
How Adventant helps
Questions answered
If a manager delegates investor checks to us, who is responsible?
Both. The manager remains responsible for the fund's AML duties and the administrator for its own. A clear written agreement saying who does what helps, but does not remove responsibility.
Can we pay a redemption to a third party?
Only with caution. Supervisors expect payments to go to an account in the investor's name unless there is a good reason and extra checks. The reason and the checks should be recorded.
What should be in a delegation agreement?
Which checks the administrator does, the standard to be met, how the manager can test it, what reports it receives, and what happens when problems arise.
How do we deal with nominee investors?
By understanding who sits behind them and what checks the nominee does. The risk assessment should say when you rely on the nominee and when you look through to the underlying investors.
Do we need our own MLRO?
Supervisors expect an appropriate person with the authority to act on AML matters. The arrangement should suit the size and risk of the business and be accepted by your regulator.