On 7 October 2016, the Department ofFinance and the Department of Justice and Equality published the first NationalRisk Assessment for Ireland (NRA) on money-laundering and terrorist financing(AML/CTF). The NRA is a detailed document and reflects a key objective of theinter-governmental Financial Action Task Force (FATF) topromote effective implementation of legal, regulatory and operational AML/CTFmeasures. The NRA also anticipates the Fourth Anti-money Laundering Directive(EU 2015/849) (AMLD4) which is required to become law in EU member states inJune 2017. AMLD4 introduces a requirement for member states to identify,assess, understand and mitigate AML/CTF risks, related data protection concernsand to keep their assessments up to date. It is envisagedthat the NRA will be kept updated.
The NRA includes a review of the riskspresent in sub-sectors within the Irish financial services industry includinginvestment funds. The various sub-sectors were given risk ratings based on”residual risk” i.e. “the residual risk after taking mitigants and otherrelevant factors into account”. The report acknowledges that a higher riskrating does not necessarily indicate that there is low compliance within theparticular sector, noting that: “Some sectors will bytheir very nature or scale remain higher risk even with robust AML/CTFcompliance, whilst others may remain unproblematic, despite potentialvulnerabilities”.
Risk ratings were ascribed to 21sub-sectors within the financial services industry including thefollowing:
- Retail banking – high risk rating due to the nature, scale and complexity of the sector and its central role in Irish financial services, offering core banking services to a broad population and acting as a gate-way to the wider financial sector.
- Non-retail banks – medium-high risk rating. Non-retail banks have a global presence and the majority of business conducted by them is non face-to-face with the use of electronic commerce to complete transactions. The use of complex products may make it difficult to identify the ultimate beneficial owner and the source of funds. Notwithstanding this, certain non-retail banks provide lower risk services to lower risk customers, which brought the overall risk rating to medium high.
- Life assurance – medium-low risk rating because many of the products offered by the sector do not provide sufficient flexibility to be attractive to money launderers or terrorist financers, for example protection-only or pension products. The potential risks presented by higher risk products such as single premium products can be mitigated both by due diligence conducted at the outset of and during the business relationship.
- Funds/fund administrators – medium-high risk rating. Although the fund industry is not cash based it has a high geographical reach in terms of the jurisdictions into which funds are marketed and also in terms of non-Irish funds to which fund administrators may provide services. There are high volumes of subscriptions and redemptions associated with certain types of funds and as funds are usually marketed through distributors there is no direct business relationship with the underlying investor.There is also a high level of outsourcing and significant reliance on third parties to conduct customer due diligence.
The NRA is a very useful document andprovides significant detail not just on Ireland’s legislative, supervisory and enforcement architecture and environment in the area ofAML/CTF, but also information, statistics and risk assessments of financial andnon-financial businesses and professions in Ireland which are subject toAML/CTF obligations and which are at risk of AML/CTFvulnerabilities.
Contributed by PatriciaTaylor