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<p style="text-align: center;"><span style="font-family: arial,helvetica,sans-serif; font-size: 12px;"><strong><strong>New challenges for Irish MLROs and Fund Boards</strong></strong></span><br /><span style="font-family: arial,helvetica,sans-serif; font-size: 12px;"><strong><a href="https://newsletter.ie/run/v3.aspx?m=2xKCidGw7yq87BJ4AkhxH1cc23B%2FNKlatb9VJGcHtnqVAD5uU5KU%2FHN5UiGjhu4Ks%2B7kdKIEZqs%3D_zek_d7ddk">View in browser</a> | <a href="https://newsletter.ie/run/tafn.aspx?m=2xKCidGw7yq87BJ4AkhxH1cc23B%2FNKlatb9VJGcHtnqVAD5uU5KU%2FHN5UiGjhu4Ks%2B7kdKIEZqs%3D_zek_d7ddk" >Tell a Friend</a><br /></strong></span></p>
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<td style="border: 0px;" bgcolor="#ffffff"> <br /> <img src="http://newsletter.ie/E/organization/CARNE/Images/carneGlobalLogo.jpg" style="display: block;" alt="Carne" title="Carne" width="622" height="102" border="0" /></td>
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<h1 style="line-height: 1.15; text-align: left; color: #365f91; font-size: 14pt; font-family: 'Cambria'; font-weight: bold;"><span>New challenges for Irish MLROs and Fund Boards</span></h1>
<img src="https://images.newsletter.ie/CARNE/Images/DaveBurns.jpg" style="float: right;" alt="David Burns" width="200" height="300" border="0" />
<p>Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) compliance has been rising up the regulatory agenda for Irish funds. AML / CFT was listed by the Central Bank of Ireland (CBI) as an enforcement priority for 2014 and 2015 and with a FATF review of Ireland set to take place in 2016, this looks likely to continue. With more focus than ever before on AML / CFT compliance within the Irish funds sector, we asked Carne’s Dave Burns to shed some light on several current AML / CFT issues for Irish funds.</p>
<p><strong>What is the role of an MLRO?</strong></p>
<p>There is a regulatory requirement in Ireland for Designated Persons (including funds) to appoint an MLRO. The MLRO is responsible for suspicious activity reporting (SARs) to the Irish Police and the Revenue Commissioners (the authorities) and acts as a liaison between the Designated Person and the authorities. The MLRO is responsible for receiving information from any party that might indicate possible suspicious transactions and processing that information accordingly.</p>
<p><strong>In an outsourced fund structure, what are the responsibilities of the various parties in relation to AML?</strong></p>
<p>The Board of Directors has overall responsibility for ensuring adequate AML / CFT procedures, that controls are in place and that they are operating in practice. Although the day to day AML / CFT checks will typically be delegated to the Administrator, the Board still need to supervise the Administrator in its role and ensure appropriate oversight and risk reporting is in place for monitoring purposes. The Board should also have its own documented policy in place to demonstrate this. The Fund MLRO can assist the Board in fulfilling its requirements in this regard.</p>
<p><strong>How does the Fund’s Board oversee the work of the Administrator?</strong></p>
<p>The Fund Board should receive quarterly (at a minimum) detailed reports from the Administrator including details of any non-compliant investors, overview of risk categorisation of the Fund’s investors, number of reliance arrangements in place and details of any higher risk investors/SARs. The MLRO should also complete at a minimum an annual due diligence visit to the Administrator including a review of the Administrator’s AML Policies and Procedures (AML P&Ps) and a sample of investor Customer Due Diligence (CDD) files. The MLRO should produce a report for the Board highlighting any issues identified as part of the review. The Board should be able to demonstrate through the minutes that appropriate action is taken to resolve any issues reported in a timely manner.</p>
<p><strong>Why has there been so much focus on AML issues recently?</strong></p>
<p>The CBI carried out a significant number of AML / CFT themed inspections of Irish financial services firms (including funds and Administrators) throughout 2013 and 2014. One of the key focuses of the inspections was to determine if firms had followed their recommendations as set out in the October 2012 ‘Dear CEO’ letter. A recent CBI report has already highlighted numerous issues identified within the wider Irish banking sector and we are expecting a similar, funds industry specific report shortly. Along with this, the 4th EU Money Laundering Directive (4th MLD) was published on the 5th June with member states having two years to transpose the Directive into national law. As mentioned above, AML / CFT remains a CBI enforcement priority for 2015 and with a FATF review of Ireland set to take place in 2016, I foresee AML / CFT remaining an enforcement priority for the foreseeable future.</p>
<p><strong>What are the areas of concern arising out of regulatory visits?</strong></p>
<p>A number of areas of concern were raised, and while we still await a funds industry specific report, the CBI has highlighted incomplete risk assessments, lack of thorough analysis of key risks, failure to include AML / CFT reviews in annual monitoring and internal audit plans, and deficiencies in the Politically Exposed Persons (PEP) process. Non-adherence to stated AML / CFT and Financial Sanctions (FS) policies also emerged as a key concern. Ultimately, there was a worry that AML / CFT processes were being treated as a ‘tick box’ exercise and not receiving the due care and attention they require to be effective.</p>
<p><strong>How can these concerns be addressed?</strong></p>
<p>An assessment of AML / CFT risks applicable to the Fund(s) should be carried out. Such a risk assessment should be renewed and approved periodically. The Board needs to be able to demonstrate active engagement in the Fund’s risk assessment and ensure adequate controls are put in place to mitigate any identified risks. The Board needs to receive and consider robust, granular management information, including details of new legislative and regulatory developments. The Board must be able to demonstrate adequate oversight over any delegate (such as the Fund’s Administrator) responsible for performing AML / CFT checks on behalf of the Fund. It would be prudent also for Boards to obtain confirmation from the Fund Administrator that their AML / CFT program includes testing of Third Party reliance arrangements, a periodic refresh program of CDD documentation, AML / CFT is in scope for internal audits and assurance testing is completed for any IT systems used in AML / CFT monitoring.</p>
<p><strong>What does the future hold for AML regulation?</strong></p>
<p>While it is difficult to predict exactly what AML regulation will look like in Ireland and the wider EU in a couple of years’ time, we anticipate that there will be greater regulatory oversight of funds and their Boards in Ireland to ensure compliance with the Criminal Justice Acts (and any future Act introduced to transpose the 4th MLD into law). The recent CBI report on the banking industry already goes some way to establishing minimum best practice standards, and they should help financial services firms to assess their existing AML / CFT programmes and address any identified deficiencies. We expect the points raised in the report, in addition to any additional issues raised in the funds sector report, will form the basis for future CBI inspections. We can work with funds and their Boards to ensure that they meet these standards.</p>
<p><strong>What does the Carne MLRO team do for its clients?</strong></p>
<p>We have a team of professionals that hold the position of MLRO for a large number of funds, serviced by 19 different Administrators in the market. Our team consists of industry experts with significant investment fund and MLRO experience. We currently service over 60 client relationships, covering over 80 funds or management company entities. We work closely with our clients to resolve complex issues and queries, assess regulatory/legislative developments relating to AML / CFT and work closely with the Fund Board to address such developments. We can coordinate the drafting of an AML Policy for the Fund, complete annual on-site visits to the Administrator (e.g. to review AML P&P and sample investor files) and provide regular reporting to the Board. We can also deliver annual AML / CFT training to Boards.</p>
<p><em>For more information on Carne’s MLRO services, please contact Dave Burns <a style="text-decoration: none; color: #365f91; border-bottom: 1px dotted #365f91;" href="mailto:dave.burns@carnegroup.com">dave.burns@carnegroup.com</a>, TEL: +353 1 489 6829 or Des Fullam, <a style="text-decoration: none; color: #365f91; border-bottom: 1px dotted #365f91;" href="mailto:des.fullam@carnegroup.com">des.fullam@carnegroup.com</a>, tel +353 1 489 6805 in our Dublin office</em></p>
<p><span style="font-weight: bold; text-decoration: underline;">About Carne</span></p>
<p>Carne is a leading international specialist in the provision of independent governance services and European management company solutions to the global asset management industry. We advise both hedge fund and traditional fund managers on their governance, oversight and management needs, as well as providing independent Directors to the boards of some of the most respected investment funds globally. Carne has fund directors resident in the key fund jurisdictions, including the Cayman Islands, Channel Islands, Ireland, Luxembourg, Switzerland, the UK and USA.</p>
<p><strong><a style="text-decoration: none; color: #365f91; border-bottom: 1px dotted #365f91;" href="http://www.carnegroup.com">www.carnegroup.com</a></strong></p>
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<p><br /><span style="font-size: 10px; font-family: arial,helvetica,sans-serif;"><span style="color: #ffffff;">Carne Global Financial Services Limited</span></span></p>
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