Financial Crime World

Banks’ Customer Profiling Falls Short in Risk Assessment

Struggling to Accurately Categorize Customers

A recent evaluation has revealed that banks and other financial institutions in the Central African Republic (CAR) are struggling to accurately categorize their customers based on risk profiles. Despite understanding the risks involved, their implementation of measures to reduce these risks is inadequate.

  • Many banks only partially fulfill their duty of vigilance, with a limited number of Suspicious Transaction Reports (STRs) filed compared to the high level of risk in the sector.
  • This is particularly concerning given the critical role that banks play in CAR’s financial system.

Non-Bank Financial Institutions Lag Behind

The evaluation also highlighted a lack of understanding about anti-money laundering (AML) and combating the financing of terrorism (CFT) risks among non-bank financial institutions. While microfinance institutions and payment service providers have some knowledge of these risks, insurance companies, money services businesses, and other non-bank financial institutions are less aware.

Regulatory Gaps

The report identified several regulatory gaps in CAR’s AML/CFT system. For example:

  • The country has not taken adequate measures to identify and sanction foreign exchange bureaus that operate clandestinely.
  • There is no centralized system for archiving and managing files related to mutual legal assistance and extradition.

Cryptocurrency Regulation Lacking

The evaluation also noted that the regulation of cryptocurrency activities in CAR is still in its infancy. While a law governing crypto-currencies was passed in 2022, there are no implementing measures in place to regulate the sector, leaving it vulnerable to money laundering and terrorist financing risks.

Conclusion

Overall, the evaluation highlighted several shortcomings in CAR’s AML/CFT system, including:

  • Inadequate customer profiling
  • Limited understanding of risk among non-bank financial institutions
  • Regulatory gaps

To address these challenges, the country must implement more effective measures to identify and mitigate ML/TF risks and improve its overall AML/CFT framework.

Sources

  • “Evaluation Report on the Fight Against Money Laundering and Terrorist Financing in the Central African Republic”
  • CAR National Recovery and Peacebuilding Plan (RCPCA)
  • Law No. 22/001 of 22 April 2022 governing crypto-currencies in CAR