CBI AML Report

Insights

Central Bank of Ireland Anti-Money Laundering Report
 

Countering the Financing of Terrorism and Financial Sanctions Compliance in the Irish Funds Sector

On November 18th 2015, the Central Bank of Ireland (CBI) issued the long awaited report on Anti-Money Laundering, Countering the Financing of Terrorism and Financial Sanctions Compliance in the Irish Funds Sector. Over the course of 2014 the CBI carried out on-site inspections, supplemented by Risk Evaluation Questionnaire, the outcomes of these inspections and questionnaires are the subject of the report. While the Funds sector in Ireland is the particular focus of the report, many of the matters raised relate to the broader financial services sector in Ireland.

Report overview

This report issued by the CBI serves to highlight that Anti-money laundering and counter terrorist financing (“AML / CTF”) remains a key priority for them.

This documents sets out a brief summary of the main issue areas identified in the report:

  • Governance and Compliance 
  • Customer Due Diligence
  • Identification and Escalation of Suspicious Transactions 
  • Terrorist Financing
  • EU Financial Sanctions

Some of the key issues identified included:

  • Firms lacking evidence to demonstrate the effective on-going monitoring of investors and investor transactions;
  • Instances of PEPs being taken on prior to senior management approval being obtained, and prior to Source of Funds and Source of Wealth being sufficiently identified;
  • Firms using third party reliance in circumstances where the not all required conditions of the Act were met, and a lack of oversight of service providers carrying out AML/CFT functions; and
  • Procedures and controls not being in place for cessation of the provision of services to and discontinuing business relationships with investors who have not provided sufficient due diligence documentation.

The main observations of the Central Bank can be broken down into the following areas.

Report on Anti-Money Laundering/Countering the Financing of Terrorism and Financial Sanctions Compliance in the Irish Funds Sector

Governance and Compliance

Risk Assessment

  • Insufficient evidence that the requirements of the CJA 2010 were implemented and that adequate risk assessments were performed in a timely manner, and more than as a “one off” exercise.

Outsourcing

  • A lack of oversight from the Firm of service providers carrying out AML/CFT functions on behalf of the Firm, and failure to monitor the service provider through MI, policies and procedures, training and assurance testing.

Roles and Responsibilities

  • Insufficient evidence that all members of the Firm’s board and/or staff at the Firm had received instruction in the law relating to AML/CFT issues, and a lack of oversight of service providers carrying out AML/CFT functions.
  • A lack of sufficient resources assigned to address AML/CFT duties.

Policies, Processes and Procedures

  • Insufficient evidence of effective on-going monitoring of investor transactions; Insufficient documentation being retained to support the application of simplified customer due diligence (“SCDD”).
  • A lack of procedures and controls for ceasing the provision of services to, or discontinuing business relationships with, investors who have failed to provide the required or updated CDD documentation or information requested by Firms.
  • Documented policies and procedures not being adhered to in all cases. 

Training

  • While covered in the above sections, the lack of on-going AML training for Board members and the lack of evidence being sought that service providers had received sufficient AML/CFT training was separately called out by the CBI.
     

Customer Due Diligence

On-boarding customers

  • Deficiencies in the on-boarding process of PEPs, including the failure to sufficiently identify, verify and document Source of Funds (“SOF”) and Source of Wealth (“SOW”).
  • Incorrect application of Simplified Customer Due Diligence (“SCDD”) and failure to retain evidence to support SCDD.
  • Incorrect application of Section 33 (8) (b) of the legislation with respect to the approach to discontinuation of business relationships and the measures taken in response.

Ongoing Monitoring

  • Insufficient evidence of effective on-going monitoring of investor transactions.
  • Insufficient evidence that new PEPs (and existing investors re-categorised as PEPs) are subject to senior management approval and the completion of enhanced due diligence (“EDD”).

Reliance on Third Parties

  • Reliance on third parties to conduct elements of CDD in circumstances where not all the conditions set out in Section 40 (4) of the CJA 2010 have been fully met e.g. caveats have been used by the firm on which reliance is placed.
  • A failure to perform regular monitoring of relevant third party arrangements through assurance testing.
     

Identification and Escalation of Suspicious Transactions

  • Weaknesses in the suspicious transaction reporting processes and procedures and the record keeping associated with these reports, including:
     - reliance on outsource providers for policies and procedures;
     - failure of staff to adhere to procedures
     - failure to have effective transaction monitoring systems in place; and
     - failure to retain transaction monitoring records.
  • Additionally, the report outlined a requirement whereby in situations whereby the underlying predicate offence for an STR (e.g. fraud, theft) is identified (in addition to the STR), that offence should be reported separately to An Garda Síochána.
     

Terrorist Financing & EU Financial Sanctions

  • While there were no specific findings around Terrorist Financing, the CBI outlined its expectations that preventative measures should be taken with respect to Terrorist Financing, commensurate with risk.
  • Firms must ensure that they have an appropriate framework in place to ensure compliance with all applicable FS Regulations, particularly a freezing requirement, prohibition on making funds and resources available, and obligations to notify the Competent Authority.
     

How can we help

In reviewing the above information, and through interactions with the Central Bank of Ireland, it is clear that AML/CFT requirements are very much a priority on the CBI’s agenda going forward, and that there are a significant level of improvements to be implemented across the Funds Industry.

As such, it appears to be a CBI expectation that significant focus will be placed by firms in the Funds Industry in taking measures to address the findings identified and to ensure that they are compliant with the requirements of this report.

Our Risk Advisory team have extensive experience in the area of Anti-Money Laundering and Counter-Financing of Terrorism, and have worked directly with the Central Bank of Ireland in completing some of the deep-dive AML/CFT inspections in the funds industry that informed this report.

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