Central Bank 2024 Regulatory & Supervisory Outlook Report – Financial Crime Spotlight – Financial Services

The Central Bank of Ireland (Central Bank)
recently published its 2024 Regulatory & Supervisory Report
(Report).

See our recent article detailing key aspects of the report here. The Report describes financial crime as
involving the abuse of the financial system by criminal actors.
Areas of financial crime risk that fall under the Central
Bank’s regulatory mandate and to which the Central Bank has
specific responsibilities include money laundering
(ML), terrorist financing (TF),
fraud, financial sanctions evasion, market abuse and the
unauthorised provision of financial services.

The Central Bank has wide-ranging responsibilities in the
prevention of financial crime. It is one of three national
competent authorities for the administration of financial
sanctions, which are restrictive measures under the EU’s
Restrictive Measures regime imposed on natural and legal persons to
curtail their activities and to exert pressure and influence on
them. The Central Bank also investigates market abuse and the
unauthorised provision of financial services.

The Central Bank works closely with law enforcement, other State
agencies, domestic supervisors, and peer regulators. Where it
identifies criminal activity taking place in the financial system,
it works with An Garda Siochána and other agencies that lead
criminal investigations and prosecutions.

Risk Exposure

The Report notes that Ireland is exposed to financial crime
risks on a domestic and international level. The mitigation of
these risks relies on firms being aware of the risks faced and
having robust risk management frameworks to identify and mitigate
them.

The following are identified in the Report as the key elements
and drivers of financial crime risk:

• Money Laundering and Terrorist Financing
  
  Ireland is exposed to both ML and TF in its domestic
  economy as well as by criminals outside the State. ML and TF are
  complex areas that require a whole-of-system approach. Regulatory
  authorities, law enforcement and industry all need to collaborate
  to understand the threats and vulnerabilities and the priority
  areas for focus. ML and TF typically involve the transfer,
  concealment or conversion of the proceeds of crime. Therefore,
  anti-money laundering (AML) measures are key to
  preventing financial crime.The Report identifies retail-facing
  sectors as critical areas for the functioning of the system and the
  economy. As these sectors often act as a gateway to the financial
  system, they present heightened financial crime risks that need to
  be mitigated. Organised crime gangs engaged in transnational
  criminal activity often launder the proceeds of crime using
  corporate entities and abuse financial services to place and
  transfer funds.




• Fraud
  
  Fraud risk has increased in recent years with
  technological advances, exposing firms, consumers, businesses, and
  the wider financial system to harm. The proliferation of online
  fraud and scams causes significant harm to consumers and undermines
  the integrity and confidence of the financial system. No
  demographic group is immune from the risks posed. According to the
  Report, whilst international cooperation with other agencies is
  key, the retrieval of stolen funds can be challenging, making
  preventative measures and vigilance critical to mitigate the
  risks.




• Market Abuse
  
  The increased scale and sophistication of securities
  market activity in the Irish financial sector results in the
  continued exposure of the financial market to all types of market
  abuse. Higher trading volumes, more automated trading processes and
  higher levels of order cancellation increase the potential for
  market abuse and difficulty in detecting these activities.




• Financial Sanctions
  
  The geopolitical landscape has shifted in recent years and
  is reflected in the nature and scale of financial sanctions
  introduced.Like other areas of financial crime, the Irish financial
  system and firms operating in it are exposed to increased sanctions
  risks. This is particularly the case given Ireland is an open
  economy and has a large internationally facing financial services
  sector. One of the main risks is the circumvention of EU financial
  sanctions, which is a criminal offence with serious consequences,
  not only for the firm or individuals concerned, but also for the
  reputation of the wider system.

Key Activities in 2024/2025

The Central Bank will continue to apply a risk-based approach to
prevent financial crime. Specific activities highlighted for
2024/25 include:

• AML/CFT supervision
  

  • Ensure the highest risk entities have effective AML /
    countering the financing of terrorism (CFT)
    control frameworks in place;

  
  

  • Thematic supervision across sectors focusing on firms’
    ML/TF risk assessment arising from international money flows and
    the appropriateness of their control frameworks; and

  
  

  • Further enhancements to the Central Bank’s data collection
    and analysis from its Risk Evaluation Questionnaires, resulting in
    bespoke questionnaires for sectors. This will require firms to
    submit more quantitative data that will be used to determine the
    risk rating of firms and sectors.

• Financial sanctions
  

  • Maintain the Central Bank’s focus on implementing EU
    financial sanctions through working with other competent
    authorities and agencies, assessing derogation requests, and
    engaging with entities on their financial sanctions control
    frameworks.

• Market abuse
  

  • Focus on the requirement for firms to report suspicious orders
    and transactions to the Central Bank without delay, building on its
    extensive communication to the financial services industry in
    recent years on market abuse obligations and the Central Bank’s
    priorities;

  
  

  • Enhance the Central Bank’s surveillance of the market and
    extend surveillance across multiple trading venues, including
    working with other National Competent Authorities and ESMA;

  
  

  • Focus on improving the extent and quality of suspicious
    transaction and orders reporting (STORs); and

  
  

  • Enhance the Central Bank’s approach to the analysis,
    investigation, and enforcement of suspected market abuse.

• Fraud
  

  • Proactively detect, filter and triage suspected online fraud
    and scams and help disrupt these activities;

  
  

  • Intensify cooperation and collaboration with other agencies
    (for example, An Garda Siochána, the Competition and
    Consumer Protection Commission and Coimisiún na Meán)
    and technology firms, to combat fraud in financial services;

  
  

  • Proactive and targeted communications to consumers and the
    wider public on fraud and the unauthorised provision of financial
    services. This will build greater awareness of fraud and scams and
    the need for heightened vigilance; and

  
  

  • Further develop the Central Bank’s technology capabilities
    to improve its surveillance of social media to identify potential
    abusive practices.

Conclusion

The Report identifies financial crime as a key risk facing the
regulated financial sector. Financial services providers need to be
aware that the Central Bank will be strengthening its regulatory
and supervisory role in AML/CTF, financial sanctions, market abuse,
and fraud.

The Governor of the Central Bank, on the publication of the
Report, remarked that leaders of firms in the financial system are
expected to adopt “a proactive, consumer-centric and
forward-looking approach” to risk management. The risk
outlook and supervisory priorities of the Central Bank set out in
the Report for 2024, together with the Spotlight on financial
crime, will assist firms in knowing what to expect in terms of the
Central Bank’s focus for the year ahead.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.