Financial Crime World

Iceland Enhances Supervision of DNFBPs with New Risk-Based Approach

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Iceland has taken a significant step to strengthen its anti-money laundering and combating the financing of terrorism (AML/CFT) regime by introducing a new supervisor within the Directorate of Internal Revenue (DIR) to oversee the whole DNFBP sector.

Strengthening Supervision

The newly established supervisor is responsible for regulating law professionals and the gaming sector, which were previously unsupervised. The DIR’s AML/CFT unit has been working closely with other domestic authorities to set up a surveillance plan and strategy, procedures, standards, and supervisory approach.

Risk-Based Approach

The DIR has developed a comprehensive sectoral risk assessment of sectors subject to its supervision, as well as individual risk assessments of most obliged entities. The agency’s risk-based approach categorizes sectors into four risk categories: high, significant, medium, and low.

Factors Considered in Risk Assessment

The DIR’s risk assessment model assesses the risk of money laundering and terrorist financing related to a business model and the quality of an entity’s internal rules, controls, and procedures. Factors considered include:

  • Nature, scale, and complexity of the entity
  • Customer types
  • Distribution channels
  • Product offerings
  • Geography
  • Corporate governance
  • Risk assessment
  • Employee training
  • Customer due diligence
  • Suspicious transaction reporting
  • Record keeping

Enhanced Supervision Efforts

The DIR has taken several steps to deepen its understanding of risks in the sectors it supervises. These efforts include:

  • Visiting sister authorities in Scandinavia
  • Cooperating with other domestic authorities
  • Preparing and publishing extensive guidance material for DNFBPs
  • Engaging in dialogue with overseas entities
  • Conducting seminars and presentations
  • Carrying out on-site and off-site inspections
  • Sending circulars and informational letters to all DNFBPs

Sectoral Risk Assessments

The DIR has completed assessing the risk for obligated entities (OE) in sectors considered high-risk and is close to completing such work for OE in sectors deemed significant-risk. Individual risk assessments are based on various factors, including:

  • EU risk assessment
  • National risk assessment
  • Sectoral risk assessment
  • Calculation of an OE’s risk score
  • Information from other competent authorities
  • Suspicious transaction reports
  • Media coverage

Updating Risk Assessments

According to the DIR’s procedures, risk assessments for high-risk and significant-risk OE will be updated annually or when changes occur that may affect their risk scores. Risk assessments for medium-risk OE will be updated biannually, while those for low-risk sectors will be updated every three years or when changes occur.

Positive Results

Iceland’s efforts to combat money laundering have yielded positive results. According to data:

  • Money laundering investigations increased by 511% from 2016 to 2018.
  • The number of investigators/specialists investigating ML and the underlying predicate offence has also increased by 8%.
  • Prosecution rates are high, with almost all cases leading to conviction.

These developments demonstrate Iceland’s commitment to enhancing its AML/CFT regime and ensuring the integrity of its financial system.