Financial firms are ignoring their legal responsibilities to prevent money laundering and the financing of terrorism and leaving oversight to unqualified staff, according to the Central Bank of Ireland (CBI).
A supervisory review of compliance with anti-money laundering (AML) and counter financing of terrorism (CFT) regulations found that boards across a wide segment of the financial industry have been neglecting the rules.
Regulators have sent a ‘Dear CEO’ letter to all so-called ‘Schedule 2 Firms’ – those that conduct financial services but are not otherwise licensed by the CBI – laying out the findings and the expectations for compliance. The letter warns that the CBI will be following up with firms that have shown weaknesses and failures in their AML/CFT regimes.
However, the CBI did not specify any concrete actions to deal with poor compliance levels across the sector or call out particular firms for bad practices.
“The Central Bank expects all firms to be alert to the risks that money laundering and criminal financial activities may pose to their customers and business, and the wider integrity of the Irish financial system,” said Seána Cunningham, director of enforcement and anti-money laundering at the CBI. “This requires CEOs and boards to have in-depth knowledge and understanding of their anti-money laundering and counter financing of terrorism obligations.”
“Our supervisory engagements revealed a low level of compliance with the AML/CFT control framework requirements,’ she said.
For the majority of firms contacted by the CBI during the review, AML/CFT was only discussed at board level after notification by regulators, suggesting financial services providers are not proactively implementing the required policies on their own.
Inspectors also found a number of instances where firms had appointed an individual responsible for AML compliance who could not demonstrate sufficient knowledge of the relevant regulations.
In other cases, the responsibility had been outsourced to a third-party service provider without appropriate oversight from the regulated firm, meaning the legal chain of responsibility was broken.
At the most basic level, the majority of firms inspected could not demonstrate that they had assessed the money laundering or terrorist financing risks of their customers. The CBI singled out special purpose vehicles engaged in lending as particularly vulnerable to abuse in this regard.
Financial firms are required by AML/CFT rules to understand and document the origin and use of funds they handle on behalf of customers, with special obligations towards clients deemed higher risk.
Financial firms are also expected to identify, track and report suspicious transactions as part of the fight against organised crime and terrorism, which use regulated companies to clean money derived from illegal activities, such as drug trafficking.