High-Risk Countries and PEPs Under Scrutiny: Concerns Over Inadequate Monitoring and Regulation
Recent Review Highlights Concerns Over Inadequate Monitoring and Regulation of High-Risk Countries and Politically Exposed Persons (PEPs) in Banking, Currency Exchange, and Gambling Sectors.
Inadequate Monitoring and Verification of PEPs
Despite efforts to identify and verify PEPs, difficulties were noted regarding the verification of source of funds and wealth information. The review found that while all Obliged Entities (OEs) have measures in place to identify PEPs, varying degrees of understanding have been demonstrated by OEs to implement Terrorist Financing (TF) related measures.
Banking Sector: Higher Level of Knowledge
Banks, however, demonstrated a higher level of knowledge in this area. Nevertheless, it appears that clients from high-risk jurisdictions and transactions are not being monitored in an enhanced manner, leading to low reporting rates.
Internal Control and Compliance Arrangements
The review also highlighted concerns over the internal control and compliance arrangements in OEs, with some OEs lacking understanding of what to look out for in order to identify suspicious activity. This lack of understanding has led to deficiencies in monitoring, which translates into low reporting rates.
Financial Supervision Commission (FSC) and Bulgarian National Bank (BNB)
The FSC and BNB were found to have controls in place to prevent criminals from owning or controlling supervised entities, but these controls are not being applied consistently across all sectors. Moreover, processes of ongoing monitoring for compliance with entry requirements and detection of close associates of criminals require substantial enhancement.
Money Laundering (ML) Risks
The review criticized the financial supervisors’ understanding of ML risks, with some supervisors demonstrating a lack of knowledge on TF risk and institutional risk. The National Revenue Authority (NaRA) was found to underestimate the risks in its supervised gambling and currency exchange sectors, while the CRC’s supervisory authority over postal money remittance sector was unable to clearly articulate vulnerabilities and risk exposure.
Recommendations
The review concluded that further enhancement is required for financial supervisors to develop risk-based supervisory models, especially in relation to institutional risk assessment. Additionally:
- DNFBP supervision should be risk-based
- The FID-SANS should carry out more inspections to check compliance with AML/CFT requirements
- Supervisory authorities need better resources and guidance to improve risk-based supervision
Conclusion
The review highlights the need for improved monitoring and regulation of high-risk countries and PEPs to prevent money laundering and terrorist financing. Effective measures are required to ensure that financial institutions are equipped to identify, report, and mitigate these risks.