AML and CDD: From Compliance Burden to Competitive Advantage for Private Funds
Why financial crime compliance is under the spotlight
In the post‑pandemic era, financial crime compliance in private markets is under pressure from two directions: regulation and investor scrutiny. The UK Money Laundering Regulations 2017 require fund managers to establish clear frameworks for identifying, verifying and monitoring the individuals and entities they do business with. However, investors and counterparties increasingly view anti‑money laundering (AML) and customer due diligence (CDD) not as a box‑ticking exercise but as a signal of operational excellence and trustworthiness.
The shifting expectations of LPs and regulators
Fund investors are asking more questions than ever. Operational due diligence now routinely covers AML and CDD processes, and reputational expectations from limited partners (LPs), regulators and counterparties are rising. Controls must work in practice, not just exist on paper.
AML and CDD obligations are well established: UK AIFMs and fund service providers must carry out CDD on investors, conduct ongoing monitoring and file suspicious activity reports when appropriate. CDD includes verifying identity and beneficial ownership, assessing risk levels and conducting ongoing screening. Many fund managers now apply similar checks to deal counterparties, co‑investors, joint‑venture partners and vendors. This broader application reflects a shift towards proactive risk management in a market where transaction complexity is high.
The two big friction points
Experts identify two pressure points for fund managers:
Investor onboarding. Structures involving trusts, nominees or multi‑layered corporates complicate AML and CDD. Meeting compliance standards without slowing capital calls requires deep familiarity with documentation and regulatory thresholds across jurisdictions.
Counterparty checks. Deal teams and investment committees increasingly expect robust screening of counterparties. These checks must be fast, thorough and auditable—even when they fall outside formal AML scope.
In both cases, the underlying expectation is the same: can the manager demonstrate control?
What good looks like
A robust CDD process—whether applied to investors or counterparties—includes:
Clear identification and verification of Ultimate Beneficial Owners (UBOs) or Senior Managing Officers (SMOs).
Documented customer risk assessments covering jurisdiction, transaction size and relationships.
Politically Exposed Person (PEP) and sanctions screening with ongoing monitoring.
Adverse media checks to detect reputational risks.
Source of funds and wealth verification to ensure funds are legitimate.
Periodic and event‑driven reviews to keep data current.
Risk‑based escalation and governance procedures that are consistently applied.
Turning compliance into a competitive edge
For private equity, venture capital and real estate managers, efficient AML and CDD processes can deliver a commercial advantage. Here are strategies to turn a regulatory obligation into an operational strength:
Digitise onboarding workflows. Automated platforms can collect KYC documentation, perform identity verification and risk assessments in real time. Reducing manual touchpoints accelerates investor onboarding and capital deployment.
Integrate screening and monitoring tools. Continuous PEP, sanctions and adverse media monitoring ensures that risk profiles remain up to date without overwhelming compliance teams.
Centralise data for auditability. Keeping all KYC records, risk assessments and screening results in a secure data room simplifies audits and enhances investor confidence.
Extend CDD beyond investors. Applying the same rigor to counterparties, co‑investors and vendors demonstrates a holistic approach to risk management.
How FTS helps
FundTech Solutions (FTS) offers a white‑label platform designed for UK private market managers. Our system integrates e‑signatures, ID verification, AML screening and investor reporting into a single workflow. This means:
Faster onboarding: Investors can complete KYC forms online and IR teams can track progress via dashboards.
Scalable compliance: Automated PEP and sanctions screening reduces false positives and flags issues early.
Audit‑ready records: Every action is timestamped and stored for easy retrieval during regulatory reviews.
Final takeaways
AML and CDD are no longer just regulatory requirements; they are part of how fund managers demonstrate trustworthiness to LPs, regulators and counterparties. GPs that invest in modern compliance workflows can reduce friction, protect their reputation and gain a competitive edge. By embracing technology and best practices, you can turn the burden of compliance into a catalyst for operational excellence.