Financial Institutions Struggle to Identify Sanctioned Entities, Report Finds

A recent report has shed light on the challenges faced by financial institutions and Designated Non-Financial Businesses and Professions (DNFBPs) in identifying close associations with sanctioned entities and individuals.

Understanding Money Laundering and Terrorist Financing Risks

The report found that while banks demonstrated a good understanding of money laundering (ML) and terrorist financing (TF) risks, there was less understanding of TF risk among non-bank FIs, including Payment Institutions (PIs), and exchange offices. Notaries also underestimated the risks presented by their gatekeeper role in real estate transactions.

Automated Monitoring Systems and Self-Declarations

The report noted that while some obliged entities had implemented effective automated monitoring systems, others relied too heavily on self-declarations and domestic registers of beneficial owners to identify customers with legal persons.

Supervisory Authorities’ Prioritization of AML/CFT Supervision

Furthermore, the report found that supervisory authorities were not prioritizing Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) supervision, which has led to inconsistent application of sanctions and a lack of demonstrated effectiveness in addressing ML/TF risks.

Positive Developments and Limitations

The report highlighted some positive developments, including:

• The increasing staff numbers and organisational changes made by the National Bank of Romania
• The development and use of public registries to prevent misuse of legal persons

However, it also noted that limitations in risk understanding affected the ability to effectively address ML/TF risks.

Full Report Available Online

The full report is available online and provides further details on the findings and recommendations for improvement.