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AML Health Check – Irish Funds Sector

On 18 November the Central Bank issued its findings following a detailed review of the Irish Funds Sector. The prognoses wasn’t great and confirms our understanding that AML will continue to be under the spotlight, specifically for this industry sector, for the foreseeable future. 

Head of Anti-Money Laundering at the Central Bank Domhnall Cullinan said:

Latest figures show that Irish domiciled funds have a net asset value of almost €1.8 trillion, making the Irish funds industry a significant part of the Financial Services sector. Any business with such a large variety and amount of customers, high values and volumes of transactions and a cross border nature is attractive for money laundering/terrorist financing.

The Central Bank acknowledges that many firms had responded positively to previous Central Bank communications but, as the report identifies, more work is required by firms in Ireland to effectively manage money laundering/terrorist financing risk. The Central Bank expects all Funds and Fund Service Providers to carefully consider the issues raised in the report, and to use the report to inform the development of their AML/CFT and FS frameworks.

The issues identified in the report are consistent with findings in other industry sectors and include:

  • reliance on third parties to conduct elements of customer due diligence in circumstances where the arrangement with the third party does not fully meet all required conditions, and more generally, a lack of oversight from Funds of service providers carrying out AML/CFT functions on their behalf;
  • insufficient evidence of effective on-going monitoring of investor transactions;
  • a lack of procedures and controls for ceasing the provision of services to and discontinuing business relationships with investors who have failed to provide the required or updated customer due diligence documentation or information requested by firms; and
  • deficiencies in the on-boarding process of Politically Exposed Persons, including the failure to sufficiently identify, verify and document Source of Funds and Source of Wealth and the failure to document senior management approval.

At Grant Thornton we certainly see this subject as being an important operational risk matter for investment firms, as well as third party service providers.