The sector in brief
A single family office is a private company that manages investments, property and administration for one family. It is not open to the public and has one client group. In the DIFC, such offices appear in the DFSA's list of designated businesses and professions, which means they have AML duties even though they serve only one family.
The risk profile is particular. The wealth is concentrated and often large, it may have been built in many places over a long time, and it is usually held through a web of companies, trusts and accounts. At the same time the people running the office are close to the family, which can make it hard to ask difficult questions.
Supervisors expect family offices to act as they would for any client: understand where the wealth came from, map the structure and watch for activity that does not fit. A family office that cannot explain its own family's wealth is exposed.
Where the risk sits
Source of family wealth
Wealth passed down or built across generations and countries may have a history that is hard to document. Gaps in that history need to be understood, not ignored.
Complex structures
Holding companies, trusts and foundations in different countries can make it difficult to see who really owns an asset.
Politically exposed family members
Some families include public officials or people connected to them. They require enhanced due diligence and senior sign-off.
Informal practices
A family office may run on trust and long relationships, with less documentation than a regulated firm would keep.
Payments for the family and third parties
Payments to many people, such as relatives, advisers, charities and employees, can hide the movement of funds if they are not recorded.
Who supervises you
Single family offices in the DIFC are supervised by the DFSA as designated businesses and professions. A family office in another jurisdiction answers to the authority that licensed it, and may be classed differently, so check how your licence describes your activity.
The supervisor decides the detailed rules for your licence category, so always read its current guidance alongside this page.
What supervisors expect
- A named compliance officer or MLRO, independent enough to ask difficult questions of the family.
- A business risk assessment that considers the family's wealth, structures, countries and activities.
- A clear map of the family structure and of each entity's owners and controllers.
- Source of wealth records, supported by documents, for the main sources of family wealth.
- Due diligence on counterparties, advisers and investment partners, and screening of the family and related parties.
- Monitoring of significant payments and unusual movements, and records of the reasons for them.
- Reporting through goAML, training, record keeping and independent testing proportionate to the office.
Red flags to watch
- A family member who asks the office to move funds without a clear purpose.
- Payments to third parties who are not connected to the family's activities.
- A new structure introduced with no commercial reason.
- Pressure to accept a counterparty without the usual checks because of a personal connection.
- Adverse media about a family member that has not been examined.
- Missing or inconsistent records of how wealth arose.
A worked example
A transfer requested by a family member
A senior family member tells the office to transfer a large sum to a company abroad, saying it is a private matter. The office has not heard of the company and has no contract or invoice. The compliance officer asks for documents and an explanation, and notes the request. The family member is irritated, but the office explains that it must be able to show a reason for each large transfer. If the explanation remains weak, the office declines to proceed and the compliance officer considers whether a report is needed.
How Adventant helps
Questions answered
Why does a family office have AML duties if it has only one client?
Because the risk lies in the wealth and the structures, not in the number of clients. The authorities treat a family office that carries out regulated or designated activity like other firms in that category.
Who is the customer of a family office?
The family and its related entities. The office needs to identify them and understand how they are connected, including through trusts and companies.
How much detail on family wealth do we need?
Enough to explain the main sources and to be supported by documents. The depth depends on the size and risk, and for a large family the history may need to be recorded in detail.
Is discretion a problem?
Privacy is legitimate, but secrecy from the office is not. The office must know the real owners and the purpose of each structure.
Does a small family office need an independent compliance officer?
The arrangement should suit the size and risk and be acceptable to the regulator. Independence from the family matters, because the compliance function must be able to challenge.