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Report on Anti-Money Laundering/Countering the Financing of Terrorism and Financial Sanctions Compliance in the Irish Banking Sector

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Summary

The Central Bank of Ireland has issued a report highlighting concerns regarding anti-money laundering (AML) and countering the financing of terrorism (CFT) compliance in the Irish banking sector. The report identifies several inadequacies in AML/CFT controls, including inadequate risk assessment, insufficient due diligence, and failure to implement effective internal reporting procedures.

Key Findings

• High-level MI is being provided without formal written commentary, which hinders analysis of trends and emerging issues.
• No standalone MLRO Report is produced or presented to the Board, lacking critical assessments, recommendations for improvement, and conclusions on AML/CFT controls.
• Inadequate practices in operating the three lines of defense model, including overlapping functional duties, lack of AML/CFT reviews, and inadequate IT system checks.

Recommendations

Annual MLRO Report

• Produce an MLRO Report annually, concluding on effectiveness of systems and controls, making recommendations for improvement, and involving Senior Management and governance committees.

Robust MI Reporting

• Implement robust MI reporting, regularly reviewing and challenging the suite to ensure it is fit for purpose and continually developed.

Three Lines of Defense Model

• Establish a defined three lines of defense model with coordination between business units, Risk, Compliance, and Internal Audit to ensure effective oversight and resource allocation.
• Conduct regular AML/CFT reviews using a risk-based approach, involving Senior Management and governance committees in planning and closing findings.

Customer Due Diligence

Inadequate Practices

• Inadequate practices in onboarding new customers, including inconsistent application of customer risk ratings, PEP screening, and insufficient review of verification documentation.
• Expectations for CDD include risk-based policies and procedures, with Enhanced Due Diligence applied to higher-risk products and customers.

Conclusion

The Central Bank’s report highlights the need for improved AML/CFT compliance in Irish banks. It is essential that MLROs produce regular reports, Senior Management and governance committees are involved in oversight, and MI reporting is robust and granular. Additionally, banks must ensure effective operation of the three lines of defense model and implement adequate customer due diligence practices to mitigate money laundering and terrorist financing risks.