Funds need to do more to counter money laundering, regulator says

Investment firms in Ireland need to do more to "effectively manage" their money laundering and terrorist financing risks, according to a new report from the Central Bank.

While the funds industry was the focus of its report, the bank also found that the issues raised were relevant to the broader financial services sector in Ireland.

Among the matters identified by the regulator during a series of on-site inspections last year was insufficient evidence that the requirements of the Criminal Justice Act of 2010 were being implemented, and that adequate risk assessments were being performed in a “timely manner”.

The Central Bank also found a lack of oversight from the service providers carrying out anti-money laundering (AML) and counter terrorism financing on behalf of funds.

In addition, it noted a reliance on third parties to conduct elements of customer due diligence, and insufficient evidence of “effective on-going monitoring of investor transactions”.

The bank found cases where insufficient documentation was being retained to support the application of “simplified” customer due diligence and a lack of procedures and controls were in place for ceasing the provision of services to, or discontinuing business relations with, investors who had failed to provide the required information to the fund provider.

Weaknesses in the reporting of suspicious transactions and the associated record keeping were identified along with deficiencies in the “on-boarding process” of non-resident “politically exposed persons”, including the failure to identify, verify and document the source of funds and the source of wealth.

There was also insufficient evidence that new PEPs are being subjected to senior management approval, and the completion of enhanced due diligence.

And there was evidence that not all members of a firm’s board or staff had received proper instruction in the laws around AML and terrorist financing.

In addition, the bank found that documented policies and procedures were not being adhered to in all cases.

Irish domiciled funds have a net asset value of almost €1.8 trillion, making the industry a significant part of the financial services sector here.

Domhnall Cullinan, head of anti-money laundering at the Central Bank, said any business with a large variety and amount of customers, high values and volumes of transactions, and a cross border nature was "attractive" for money laundering or terrorist financing purposes.

“More work is required by firms in Ireland to effectively manage money laundering/terrorist financing risk,” Mr Cullinan said.

“The Central Bank expects all funds and fund service providers to carefully consider the issues raised in the report, and to use the report to inform the development of their AML, counter terrorism financing and financial sanctions frameworks.”

The report was based on on-site inspections of eight funds and three service providers. As at September 30th there were 1,188 funds (or 6,080 funds including sub funds) were authorised by the Central Bank.