Risk Profiling: A Challenge for Central African Republic Financial Institutions
The Central African Republic’s financial institutions are facing a significant challenge in effectively categorizing their customers according to their profiles and transactions, making it difficult to determine risk levels.
Lack of Effective Risk Profiling
According to a recent report, the lack of understanding is not translating into up-to-date risk maps, which is hindering the country’s ability to combat money laundering and terrorist financing (ML/TF). While banks are fulfilling their duty of vigilance to some extent, the modest number of Suspicious Transaction Reports (STRs) submitted by them seems disproportionate to the criticality of the risk involved in this sector.
Non-Bank Financial Institutions
For non-bank financial institutions (FIs), understanding of AML/CFT risks and duties is patchy. Some sectors such as microfinance institutions and payment services firms exhibit a better grasp of the issue, while others like insurance companies and foreign exchange bureaus are still struggling to come to terms with their responsibilities.
Designated Non-Financial Businesses and Professions (DNFBPs)
The report notes that some DNFBPs are exposed to very high ML/TF risks, but their understanding of these risks is diverse and in its infancy overall. Most DNFBPs are unaware of the provisions of the CEMAC Regulation and therefore lack a clear understanding of their AML/CFT duties.
Implications for the Financial Sector
The lack of effective risk profiling and management has significant implications for the country’s financial sector, particularly given the ongoing security and political challenges facing Central African Republic. The report highlights that the country is facing major security and political challenges that are hindering economic and social development.
National Recovery and Peacebuilding Plan
In response to these challenges, the government has drawn up a National Recovery and Peacebuilding Plan aimed at establishing lasting peace and stability throughout the country. Additionally, the country has passed a law governing transactions linked to cryptocurrencies and established bitcoin as an official currency, which is expected to bring fresh impetus to its economy.
Addressing ML/TF Risks
The report emphasizes that more needs to be done to address the ML/TF risks faced by Central African Republic. The evaluation of control functions highlighted shortcomings in the control and supervision system for financial institutions and DNFBPs, including a lack of effective sanctions for non-compliance with AML/CFT obligations.
Recommendations
- Strengthen the control and supervision system for financial institutions and DNFBPs
- Improve transparency of legal entities and arrangements to prevent misuse for ML/TF purposes
- Establish a centralized system for archiving and managing files for the country’s central authority and directorate responsible for mutual assistance and extradition
Conclusion
Addressing these challenges is crucial to ensuring the stability and integrity of Central African Republic’s financial sector.