High-Risk Countries and PEPs Face Lack of Effective Oversight

A recent report has highlighted concerns over the lack of effective oversight in high-risk countries and Politically Exposed Persons (PEPs) in the financial sector.

Inadequate Measures to Identify and Monitor PEPs

The report examined the implementation of anti-money laundering and combating the financing of terrorism (AML/CFT) measures by obliged entities (OEs). It found that a significant number of OEs have inadequate measures in place to identify and monitor PEPs. While all OEs have measures to identify PEPs, verification mechanisms vary widely, and difficulties were noted in verifying source of funds and source of wealth information.

Variations in Implementation Across Sectors

The report also found that the banking sector has demonstrated a higher level of knowledge on implementing Terrorist Financing (TF) related measures, but other sectors such as trust and company service providers, virtual asset service providers, and accountants have no controls in place.

Lack of Understanding and Deficiencies in Monitoring

Furthermore, the report highlighted concerns over the lack of understanding by obliged entities regarding what to look out for in order to identify suspicion, leading to deficiencies in monitoring that translate into low reporting rates. The need for sector-specific guidance to identify suspicion, especially in the TF field, was emphasized.

Internal Control and Compliance Arrangements

The report noted that internal control and compliance arrangements in OEs appear to be proportionate to their size, but supervision by financial authorities is limited. The Financial Supervision Commission (FSC) and the Bulgarian National Bank (BNB) apply controls to prevent criminals from owning or controlling entities they supervise, but fit and proper tests are not performed on shareholders of currency exchange offices.

Risk-Based Supervision and Sanctioning Regime

The report further highlighted concerns over the lack of risk-based supervision, with many supervisory authorities failing to conduct regular inspections and off-site reviews. The AML/CFT sanctioning regime was also found to be ineffective, with fines imposed but not settled in many cases.

Conclusion and Recommendations

Overall, the report emphasizes the need for improved oversight and regulation in high-risk countries and PEPs to prevent money laundering and terrorist financing. Key recommendations include:

• Obliged entities should implement robust measures to identify and monitor PEPs.
• Supervisory authorities should conduct regular inspections and off-site reviews of obliged entities.
• Financial authorities should provide sector-specific guidance on identifying suspicion, especially in the TF field.
• The AML/CFT sanctioning regime should be proportionate, dissuasive, and effective.

By implementing these recommendations, high-risk countries and PEPs can work towards improving oversight and regulation to prevent money laundering and terrorist financing.