Insufficient Application of FATF Recommendations Raises Concerns

The Central Bank of Bahrain’s (CBB) oversight of financial institutions’ anti-money laundering (AML) and combating the financing of terrorism (CFT) measures has raised concerns about insufficient application of FATF recommendations.

Inadequate Implementation of AML/CFT Procedures

According to a recent review, several Islamic banks have failed to adequately implement AML/CFT procedures, systems, and controls, despite being subject to CBB regulations. The findings suggest that these institutions may be at risk of being exploited by criminals seeking to launder money or finance terrorist activities.

Deficiencies in Risk-Based Approach (RBA)

The CBB’s regulations require Islamic bank licensees to establish a Risk-Based Approach (RBA) to manage AML/CFT risks. However, the review found that some licensees have not implemented policies, procedures, and controls commensurate with their business operations. This includes:

• Failing to conduct regular ML/TF risk assessments
• Inadequate employee training
• Insufficient independent audit functions

Failure to Implement Group-Wide Programs

The CBB’s guidelines also require financial groups to implement group-wide programs against money laundering and terrorist financing. However, the review found that some groups have not developed internal policies, procedures, and controls for sharing information within the group for AML/CFT purposes.

Consequences of Inadequate AML/CFT Measures

Experts warn that inadequate AML/CFT measures can have serious consequences for financial stability and national security. “It is crucial that financial institutions prioritize AML/CFT compliance to prevent money laundering and terrorist financing,” said a leading expert in the field.

CBB’s Response

The CBB has issued warnings to several Islamic banks, urging them to take immediate action to address these deficiencies. Failure to comply may result in the CBB requiring the institution to cease operations or impose significant fines. The CBB has committed to strengthening its oversight of AML/CFT compliance and will be conducting regular reviews to ensure that Islamic banks are meeting their regulatory obligations.

Recommendations

• Financial institutions must prioritize the implementation of robust AML/CFT measures, including:
  • Regular ML/TF risk assessments
  • Independent audit functions
• The CBB must conduct regular reviews to ensure compliance with AML/CFT regulations and take swift action against non-compliant institutions.
• International cooperation is crucial in combating money laundering and terrorist financing. The Bahraini authorities should engage closely with their international counterparts to share information and best practices.

By implementing these recommendations, the Central Bank of Bahrain can help ensure a safer and more stable financial system for its citizens and stakeholders.