Financial Institutions in Czech Republic at Risk of Failing to Prevent Money Laundering
A recent study by the European Banking Authority (EBA) has raised concerns about the ability of payment institutions in the Czech Republic and the EU as a whole to manage the risk of money laundering efficiently. The report highlights several shortcomings in the way payment institutions manage money laundering risks, putting them at risk of failing to recognize and report suspicious transactions on time.
High-Risk Payment Institutions
The EBA study found that many payment institutions lack sufficient transaction monitoring and proper background checks, making them vulnerable to money laundering. There are almost 900 authorized payment institutions in the EU, including the Czech Republic, which could represent a high risk. These institutions often deal with international payments and have client portfolios that are considered higher-risk due to factors such as:
- Clients from countries with weak anti-money laundering policies
- Clients who have been refused by traditional banks
New Technologies Create New Risks
The study also highlighted the use of new technologies by payment institutions, such as one-time transactions without accounts, virtual IBANs, and remote verification of new clients. While these technologies can increase efficiency, they also create new risks that must be managed effectively. For example:
- Remote identification is considered a hazardous method from an anti-money laundering perspective
Shortcomings in Money Laundering Risk Management
The report identified several shortcomings in the way payment institutions manage money laundering risks, including:
- Low general awareness of money laundering risks among employees and third parties
- Inadequate training on money laundering issues and prevention
- Lack of efficient transaction monitoring systems
- Failure to identify and report suspicious transactions on time
- Insufficient identification and reporting of suspicious transactions
- Failure to carry out controls to comply with restrictive measures
Mitigating Risks
To mitigate these risks, payment institutions must ensure that they have effective anti-money laundering systems in place, including proper training and transaction monitoring. The Czech National Bank, which is responsible for supervising financial institutions in the country, has also identified these shortcomings as a major concern.
Expert Advice Available
KPMG, an international consulting firm, offers expert advice to help payment institutions evaluate their internal anti-money laundering management and control systems and risk assessment system according to the scope of their products and services. The firm’s experts can review:
- Onboarding processes
- KYC (Know Your Customer) processes
- EDD (Enhanced Due Diligence) processes
- Transaction monitoring
- Sanctions screening
Conclusion
With increasing regulatory scrutiny and fines for non-compliance, it is essential that payment institutions in the Czech Republic take steps to ensure they are managing money laundering risks effectively. By implementing effective anti-money laundering systems and seeking expert advice when needed, payment institutions can reduce their risk of failing to prevent money laundering and maintain a strong reputation in the financial industry.