CBI speech - preventing financial crime in a rapidly changing environment: a regulator’s view

Central Bank of Ireland (CBI) Director of Enforcement and Anti-Money Laundering, Seána Cunningham, delivered a speech on “Preventing Financial Crime in a Rapidly Changing Environment: A Regulator’s View” at the European Anti-Financial Crime Summit.

Director Cunningham discussed the current geo-political and economic context and set out key ways to counter the challenges, including:

Shared goals and collective effort:

  • CBI, as national AML/CFT supervisor and through its role in the European System of Financial Supervision and FATF, sees collective effort as essential to combat financial crime. CBI ensures that AML regulation is well designed, understood and effectively implemented by firms through supervision on a risk-based approach that protects the system, its users and the wider economy. CBI works closely with An Garda Síochána, policy-makers and peers domestically, in Europe and as part of the global network.
  • CBI's primary aim in supervising firms is to drive high standards and ensure effective risk mitigation measures are in place; it is not to spot minor deficiencies or catch firms out. By adjusting mind-sets to thinking “we are working collectively towards a shared goal of preventing money laundering and terrorist financing in our society”, we will all be more effective.
  • CBI welcomes the EU AML/CFT Action Plan and the proposed new Anti-Money Laundering Authority (AMLA) which offers an opportunity to drive better coordination, high standards and effective collective effort across Europe. CBI is supporting these European initiatives through active participation at EU fora and via the establishment of a dedicated transformation team to prepare for a seamless integration with the new authority.

Awareness and vigilance:

  • CBI sees communications, raising awareness and education as a key way to preventing people from falling victim to these crimes so that people are better equipped to recognise, avoid and report frauds for criminal investigation.
  • CBI sees collaboration, reporting and information sharing as key tools for regulators and law enforcement agencies in the fight against market abuse. CBI has strengthened its market monitoring and detection capabilities and continues to take proactive steps to protect the financial markets from abusive practices.

Changing risks:

  • The risks from financial crime are quickly changing and evolving.
  • For firms, a thorough understanding of the ML/TF risks to which the business is exposed is key to the development of an effective AML/CFT risk management framework. A key regulatory requirement is that ML/TF risks specific to a business should be captured in a firm’s business-wide ML/TF risk assessment. It is from this business wide risk assessment that all AML/CFT policies and procedures will be developed and it is therefore critical that firms have a strong understanding and articulation of the ML/TF risks to which they are exposed from the outset and that this is kept live and under review, as risks and/or business activities will change. It is also key that firms have the right people in place and the new PCF 52 (Head of AML/CFT) role in the Irish regulatory regime emphasises this.
  • It is critically important that firms and businesses understand the sanctions regime and the risks associated with not complying with the regulations. This is particularly the case for any activity with an exposure to those sanctioned entities or individuals.
  • For CBI, no different to firms in the financial sector, the risks faced by AML/CFT supervisors are changing rapidly given the rise of new ways financial services are provided and how financial markets operate. This requires CBI to continuously review its own understanding of risks in firms, sectors and the system as a whole, and the measures CBI should take to mitigate those risks. It is for this reason, as part of the CBI’s strategy, that CBI is enhancing its regulatory and supervisory approach to be more data-driven, intelligence-led and scalable.

CBI speech- developing macroprudential regulation for Funds

CBI Deputy Governor Vasileios Madouros delivered a speech on building resilience in markets. He noted that central banks and regulators have been increasingly focused on the resilience of markets and, within that, the role of non-bank financial intermediation. Further steps need to be taken to strengthen the resilience of segments of the non-banking financial system, including by developing a macroprudential lens in the regulation of non-banks. He discussed this with a focus on the investment fund sector, partly because this is a sector where CBI have particular expertise in regulating and supervising in Ireland, but also because the sector has grown significantly in systemic importance at a global level in recent years.

Strengthening the resilience of segments of the non-banking financial system, including by developing a macroprudential lens in the regulation of non-banks, would require developing a regulatory approach that:

  • Focuses on cohorts of the non-bank sector:
    • There cannot be a 'one-size-fits-all' approach across the sector. The collective impact of correlated behaviour across a cohort of funds, especially in the face of similar underlying vulnerabilities, can have a material impact on market outcomes.
    • What are individually rational actions by individual funds can – collectively – lead to disruptions in core markets.
  • Aims to limit vulnerabilities before shocks hit:
    • Key sources of financial vulnerabilities include leverage and liquidity. When shocks hit, they can transmit through interconnectedness to different segments of the financial system.
    • An underlying focus of a macroprudential perspective would be to identify and mitigate those vulnerabilities ex ante. That focus needs to be particularly pronounced when funds are key participants in core markets.
  • Ensures that regulatory outcomes reflect the evolving risk environment:
    • The nature and magnitude of risks evolves over time. This could be for either structural or cyclical reasons.
    • For example, a gradually growing importance of the fund sector in a given core market would be a structural factor that implies that a disruption in that form of financing could have a greater impact on the functioning of that market in times of stress.
    • From a cyclical perspective, history points to periods of time when financial market participants tend to under-price risk, only for that to reverse sharply in periods of stress.
  • Is co-ordinated at a global level (as per the agenda of the FSB and IOSCO).​

Minister for Finance, Michael McGrath, speech at the Irish Funds Annual Dinner

Minister for Finance, Michael McGrath, delivered a speech at the Irish Funds Annual Dinner addressing:

  • the impact on the Irish economy of: the war in Ukraine, the pandemic, the fallout from Brexit, inflation and monetary policy
  • the Department of Finance review of the Funds sector (discussed here)

Minister McGrath also referenced ongoing government work on:

  • capital markets union including:
    • AIFMD
    • an EU framework for loan origination
    • the revised ELTIF Regulation
  • the upcoming Retail Investment Strategy
  • ESG

CBI ETF survey

The CBI progressed its themed review of ETFs by issuing the second of two surveys to industry regarding the operationalisation of ETFs, including authorised participants, market makers and ETF providers. A qualitative survey was issued initially followed by a quantitative survey which has now issued.