The Central Bank of Ireland (“Central Bank”) has issued the first publication of its Anti-Money Laundering Bulletin (“Bulletin”) in 2018 (here). While the Bulletin focuses on investment firms (“Firms”), including stockbrokers, asset managers and trading platforms, it is also likely to be of interest to firms operating in other sectors.
The Bulletin contains information regarding the Central Bank’s supervisory engagements with Firms for the purpose of monitoring their compliance with the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 (“CJA 2010”). It identifies emerging trends in the sector as well as anti-money laundering/countering the financing of terrorism & financial sanctions (“AML/CFT & FS”) compliance issues in the following areas: AML/CFT Risk Assessments; Politically Exposed Persons (“PEPs”) screening and Transaction Monitoring; and Resourcing and Training.
The Bulletin identifies two emerging trends in the investment firm sector which may impact on money laundering/terrorist financing (“ML/TF”) risks. First, Firms are moving away from traditional face-to-face relationships with their customers and are increasingly using online platforms to distribute their products. Secondly, some Firms are facilitating trading through options or futures in new products such as cryptocurrencies.
The Central Bank expects that each Firm will:
- fully assess all additional or changing risks associated with any new product or service, prior to offering it to its customers; and
- ensure that its documented risk assessment and policies and procedures are updated to take account of these changes, prior to launching the new product or service.
AML/CFT Risk Assessments
The Bulletin identifies a number of the Central Bank’s expectations and findings in relation to Firms’ AML/CFT risk assessments. Points to note include the following:
- the risk assessment should be based on a clear understanding of the ML/TF risks posed by the relevant Firm’s business model and should be tailored to address those risks;
- a risk assessment should include an assessment of the Firm’s residual risk arising from the inherent risk and controls implemented by the Firm;
- a Firm must be able to demonstrate an awareness of external risk reviews, such as the National Risk Assessment and the Supra-national Risk Assessment. It must also have reviewed and considered the Risk Factor Guidelines issued by the European Supervisory Authorities; and
- a Firm should proactively review its AML/CFT risk assessment, particularly where there are significant changes to the Firm’s activity or customer profile.
According to the Central Bank, many Firms have failed to adequately consider the TF risk presented by their activities.
Politically Exposed Persons (PEPs) Screening and Transaction Monitoring
In the Bulletin, the Central Bank sets out a number of expectations and findings which focus, in particular on Firms’ screening processes and systems as well as on their Transaction Monitoring process.
Specifically, a Firm must review its PEP and FS screening processes on a frequent basis to ensure that it adequately captures the Firm’s PEP customers or any potential FS exposure. A Firm must also conduct adequate assurance testing on its PEP and FS screening processes, particularly when using a third party system for screening.
Transaction Monitoring rules/parameters must be fit for purpose. In particular they must be tailored to the Firm’s activities and reviewed or approved by compliance and/or senior management. A Firm should subject its Transaction Monitoring process to regular reviews including frequent assurance testing to ensure that it is functioning adequately. A Firm should consider documenting the rationale for including or excluding this review in its annual assurance and/or audit plans. A Firm should also apply known information about the customer for the purposes of monitoring the customer’s activity for potential suspicious transactions.
Resources and Training
Firms will be aware of the need to have tailored AML/CFT training programmes in place for all staff.
In the Bulletin, the Central Bank also emphasises the importance of having plans in place to deal with the possible departure of key staff. According to the Central Bank, many Firms have experienced high levels of staff turnover in their compliance departments, including the positions of Money Laundering Reporting Officer and Head of Compliance. This has left some Firms with insufficient AML/CFT compliance infrastructure where the Firm has expanded and, in some instances, systems and processes are no longer adequate for the Firm’s activities.
Comment and Next Steps
The Bulletin serves as a useful reminder of the Central Bank’s expectations regarding AML/CFT compliance. In particular it highlights the dynamic nature of AML/CFT compliance. Firms and other designated persons should review their AML/CFT policies and procedures in light of the Central Bank’s expectations and findings set out in the Bulletin.