Ireland Funds AML 2022 – Are you meeting your regulatory expectations?

As established during a look at the Cayman Islands, global regulations continue to place renewed emphasis on companies to develop and maintain anti-money laundering (AML) processes and procedures in order to retain or restore credibility within wider society.

In Ireland, the attention has been on the threat of money laundering, terrorist financing, and financial sanctions collectively known as “ML/TF/FS”.

One of the strategic priorities from the Central Bank of Ireland (CBI) in supporting the fight against ML/TF/FS includes AML inspections by the CBI’s dedicated Anti-Money Laundering Division (“AML Division”) of Irish funds where the CBI critically assess an Irish fund’s AML/CFT/FS programme against their AML/CFT/FS expectations. Therefore, Irish funds should be prepared for the possibility of an AML inspection by the CBI.

With the increasing burden of AML/CFT/FS compliance, Irish funds should appoint an individual, at management level, with AML/CFT/FS expertise to act as their Money Laundering Reporting Officer (“MLRO”). The MLRO will assist the fund’s Board of Directors in implementing and maintaining an AML programme which fully complies with the Irish fund’s AML/CFT/FS obligations under Ireland’s Criminal Justice (Money Laundering and Terrorist Financing) Acts 2010 to 2021 (the ‘Act’), satisfying the CBI’s AML inspection expectations.

Having recently conducted a number of AML inspections, the CBI has published a bulletin which details its findings and expectations across the following key areas:

• Corporate Governance
• AML/CFT/FS Business Risk Assessment
• Outsourced AML/CFT/FS Activities
• Customer Due Diligence

The following highlights the key expectations shared by the CBI in the bulletin, and the issues that managers and their funds should be particularly aware of to ensure their Irish fund can demonstrate compliance:

• Corporate Governance

The CBI expects Irish funds to have a Corporate Governance structure in place which allows for the movement of information between all employees, directors, and agents of the Irish fund regarding the fund’s AML/CFT/FS programme. By doing so, this will ensure the Irish fund can effectively address the CBI’s expectations regarding corporate governance. The CBI expects Irish funds to:

1. Implement and evidence an effective governance and oversight framework of the fund’s AML programme;
2. Ensure the fund Board, which is ultimately responsible for implementing, managing and overseeing the fund’s AML/CFT/FS programme, can clearly demonstrate these obligations have been satisfied through the fund’s policies, controls, and procedures (“PCPs”);
3. Ensure the fund has appointed an individual, at management level, to act as the fund’s MLRO who will assist the fund board in monitoring and managing compliance with, and the internal communication of, the fund’s internal AML/CFT/FS PCPs;
4. Ensure the fund implements and maintains an assurance testing framework, assisted by the MLRO, to assess the continued effectiveness of its AML/CFT/FS programme;
5. Ensure the fund’s board implements and monitors, when necessary, timely resolutions of AML/CFT/FS issues and matters requiring remediation; and
6. Ensure all AML/CFT/FS matters are discussed and challenged at an appropriately senior level and that those discussions are accurately recorded in minutes of board meetings.

• AML/CFT/FS Business Risk Assessment

Chapter 1A of the 2010 Act requires that a Business Risk Assessment (“BRA”) is carried out by an Irish fund identifying the inherent ML/TF/FS risks to its business. The BRA must include factors such as customer base, products and services, geographic risk, transactions and delivery channels. When preforming the BRA the CBI expects funds to:

1. Document the methodology employed for the BRA and prepare a BRA which includes an assessment of the inherent ML/TF/FS risk, an assessment of the effectiveness of the AML/CFT/FS control framework and details of the overall residual risk;
2. Ensure the BRA includes an assessment of the known ML/TF/FS risks that have been identified as presenting heightened risk for the sector, including distribution risk and outsourcing risk;
3. Ensure the fund can demonstrate it has implemented an AML/CFT/FS programme, to mitigate the risk of ML/TF/FS;
4. Ensure the BRA is subject to regular review and approval by a member of senior management and the Board should review and approve the BRA on an annual basis, at a minimum;
5. Ensure the BRA includes an assessment of FS exposure and TF risk; and
6. Ensure the BRA also considers the details of the National Risk Assessment for Ireland, and any guidance issued by the CBI and any guidelines issued by the relevant European Supervisory Authorities.

• Outsourced AML/CFT/FS Activities

Upon being selected for an AML inspection the CBI will expect the fund to provide details of any internal/external outsourcing arrangements (e.g., fund’s appointed administrator) relating to AML which include:

1. Details of the formalised and comprehensive outsourcing arrangements which are in place to govern outsourced AML/CFT/FS activities with third parties. The details should clearly outline the respective parties’ responsibilities and deliverables under those arrangements and should be subject to regular review;
2. Having appropriate processes in place to effectively monitor AML/CFT/FS activities undertaken by Outsourced Service Providers (“OSPs”) such as robust assurance testing, KPIs and monitoring the effectiveness of technological solutions used by OSPs; and
3. Where a fund is relying on an OSP’s AML/CFT/FS PCPs to perform AML/CFT/FS activities on its behalf, the fund should test such activities to ensure the effectiveness and the application of the OSP’s AML/CFT/FS PCPs and should ensure the activities are being performed to a level commensurate with the level of ML/TF/FS risk as identified in the fund’s BRA.

• Customer Due Diligence (“CDD”)

The CBI has intentionally not issued a prescriptive list of acceptable CDD documentation. Irish funds should instead maintain their own lists of acceptable CDD documents for the purposes of CDD required upon the fund’s initial risk assessment of its potential business relationship (e.g., investors). The CBI’s rationale for this approach stems from the CBI’s expectations that an Irish fund avoids a “checklist” approach to CDD and applies a more holistic, risk-based approach to all its business relationships. Regarding CDD, the CBI expects funds to:

1. Implement PCPs, which explicitly document the firm’s approach to identification and verification which should be reviewed, updated and approved to reflect legislative and regulatory guidance (this expectation includes the fund’s OSPs);
2. Implement controls, to ensure that transactions cannot occur until all CDD documentation and information is in place to meet the requirements of Section 33(6) of the CJA 2010;
3. Ensure there is sufficient oversight of the CDD activities, undertaken by OSPs on their behalf.

How JTC can help

JTC, through its Irish AML Officer Service, would be pleased to partner with your Irish fund and assist in maintaining an effective AML/CFT programme, ensuring compliance with applicable AML/CFT/FS Legislation, Regulations, Guidance and the day-to-day operation of the fund’s AML/CFT/Fs programme.

In light of the increase in AML-related regulatory inspections and administrative fines imposed by the CBI, if you would like to discuss how JTC’s AML Officer Service (which includes AML/CFT reviews, the appointment of experienced AML Officers, AML programme development and AML/CFT training) can assist with the growing day to day burden of AML/CFT compliance, please don’t hesitate to contact Clay Dupuy, Head of AML Services.

About JTC in Ireland

JTC’s agile Ireland teams are now able to offer clients a comprehensive range of fund and corporate services solutions, with high levels of customisation, no outsourcing or functionalisation of any core services.

For more information on Ireland, please get in touch with John Collins, Senior Director – Fund Services or visit our dedicated page here.

If you require a support on a specific service, please contact Graham Kennedy (fund administration), Orla Philippon (AIFM), Padhraic McLaughlin (depositary) or Ronan Reilly (corporate) directly.