The Central Bank of Ireland has recently issued “Anti-Money Laundering and Countering the Financing of Terrorism Guidelines for the Financial Sector”. These Guidelines set out the expectations the Central Bank has when Firms are identifying, assessing and managing Money Laundering (ML) and Financing of Terrorism (FT) risk.
Although they do not constitute secondary legislation, the Guidelines do assist Firms in their understanding of Anti-Money Laundering (AML) and Counter-Financing of Terrorism (CFT) obligations which stem from The Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Act 2018 (CJA 2018 ), which are based on the Fourth Directive on Money Laundering. The Guidelines provide further details on the requirements of Enhanced Customer Due Diligence (ECDD) for Politically Exposed Persons (PEPs) and the Risk-based approach.
Risk Based Approach Specific Guidance
A Firm is required to exercise a risk-based approach when applying AML/CFT measures under Sections 30A and s30B of the CJA. Application of appropriate measures to combat ML/FT for higher risk customers or other areas of business are also provided for under Sections 30A and 30B. The Guidelines recognise that resources are finite and as such must be allocated on a risk sensitive basis. The Guidelines further expand on the risk-based approach by stating that Firms must understand the level of risk presented by a customer and be in a position to apply a risk-based approach in compliance programmes.
When fulfilling this obligation, the Guidelines advise that Firms should be “cognisant” of the importance and benefits of financial inclusion. Wholesale termination of business relationships or a zero tolerance approach to entire categories of customers without individual risk assessments is not consistent with the obligation of a risk-based approach.
Enhanced Customer Due Diligence (ECDD) Specific Guidance
Sections 37 to 39 of the CJA prescribe a number of circumstances where firms are required to apply ECDD measures including; where the customer or the customer’s beneficial owner is a politically exposed person, a firm deals with a customer established in high-risk third countries, or in a business relationship that is identified as presenting a higher degree of risk.
The Guidelines suggest that firms should apply proportionate levels of ECDD measures in those situations where it is commensurate to the ML/TF risk identified. When there is a higher ML/TF risk, ECDD measures should be applied. Examples of these measures include ascertaining whether adequate information about the customer has been obtained to form a basis for a reliable and comprehensive risk assessment. If not adequate, Firms should seek additional documentation.
Another ECDD measure detailed in the Guidelines is to apply an enhanced level of ongoing monitoring to business with the customer, as appropriate to the Firm’s assessment of the ML/TF risk arising from that customer. This should be reviewed on a regular basis to ensure it remains risk-appropriate. It is also advised in the Guidelines that ECDD measures in higher risk situations are actually able to mitigate the risks and that ECDD is applied in addition to CDD, not as a replacement.
Politically Exposed Person (PEP) Specific Guidance
Identification of PEPs and application of ECDD to PEPS is required under Section 37 of the CJA. This was broadened in 2018 to include all PEPs irrespective of residency in Ireland. The Guidelines advise that ECDD requirements for PEPs are also extended to immediate family and known close associates of the PEP due to the risks presented by PEP status. PEP status does not suggest individuals are involved in suspicious activity, but is rather intended to apply higher vigilance and put individuals in a higher risk category.
The Guidelines advise that in order to comply with the CJA PEP requirements, firms should undertake the following measures:
- 6.1 Policies and Procedures in relation to PEPS. This includes PEP identification, management of PEPs and the Reliance on Third Parties in relation to PEPs
- 6.2 Senior Management Approval of PEPs. This includes the reporting and escalation of a PEP relationship to Senior Management, timelines for obtaining Senior Management sign off and the level of seniority required in order to approve a PEP relationship.
- 63 Source of Wealth and Source of Funds of PEPs. Adequate measures to establish Source of Wealth and Source of Funds which are to be used in the business relationship are required to satisfy the Firm that it will not handle proceeds of corruption or criminal activity. Measures depend on the degree of associated risk of the business relationship.
- 64 Enhanced ongoing monitoring of PEPs. Regularly review information held on PEP customers and their beneficial owners, ensuring that any new information that could affect the risk assessment is identified in a timely fashion.
The updated “Anti-Money Laundering and Countering the Financing of Terrorism Guidelines for the Financial Sector” issued by Central Bank of Ireland prove useful in assisting Firms in their knowledge and implementation of these key AML/CFT requirements under the CJA.
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