First Money Laundering and Terrorist Financing National Risk Assessment for Ireland Published
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First national money laundering and terrorist financing assessment presents a review of and ascribes ratings to the risks present in sub-sectors within the Irish financial services industry
On 7 October 2016, the Department of
Finance and the Department of Justice and Equality published the first National
Risk Assessment for Ireland (NRA) on money-laundering and terrorist financing
(AML/CTF). The NRA is a detailed document and reflects a key objective of the
inter-governmental Financial Action Task Force (FATF) to
promote effective implementation of legal, regulatory and operational AML/CTF
measures. The NRA also anticipates the Fourth Anti-money Laundering Directive
(EU 2015/849) (AMLD4) which is required to become law in EU member states in
June 2017. AMLD4 introduces a requirement for member states to identify,
assess, understand and mitigate AML/CTF risks, related data protection concerns
and to keep their assessments up to date. It is envisaged
that the NRA will be kept updated.
The NRA includes a review of the risks
present in sub-sectors within the Irish financial services industry including
investment funds. The various sub-sectors were given risk ratings based on
"residual risk" i.e. "the residual risk after taking mitigants and other
relevant factors into account". The report acknowledges that a higher risk
rating does not necessarily indicate that there is low compliance within the
particular sector, noting that: "Some sectors will by
their very nature or scale remain higher risk even with robust AML/CTF
compliance, whilst others may remain unproblematic, despite potential
vulnerabilities".
Risk ratings were ascribed to 21
sub-sectors within the financial services industry including the
following:
- 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 and
provides significant detail not just on Ireland's legislative,
supervisory and enforcement architecture and environment in the area of
AML/CTF, but also information, statistics and risk assessments of financial and
non-financial businesses and professions in Ireland which are subject to
AML/CTF obligations and which are at risk of AML/CTF
vulnerabilities.
Contributed by Patricia
Taylor
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