MLRO Compliance for Schedule 2 Firms in Ireland

The Maples Group’s fiduciary services team in Ireland collaborates with a broad range of clients, assisting with the implementation and oversight of all AML / CFT matters.  This provides both guidance and comfort to board members in ensuring their adherence to the complex legislative requirements and the expectations of the Central Bank of Ireland (CBI).

Our dedicated Money Laundering Reporting Officer (MLRO) services team provides named MLROs and key related services to Irish entities captured under the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 (CJA).  This includes investment funds and so-called “Schedule 2” firms, most commonly Special Purpose Vehicles (SPVs) engaged in lending and financial leasing.  In addition to providing named MLROs, the team can complete the required MLRO reporting, attend and make presentations at board meetings and take responsibility for Suspicious Transaction Reports (STRS) / sanctions notifications to the relevant authorities as required.  Furthermore, Maples can set up funds and Schedule 2 firms on the Irish government’s GoAML and ROS platforms, assisting with the completion of business risk assessments and annual updates to the AML / CFT policy, liaising with the relevant competent authorities as required.

As the CBI continues to focus on AML / CFT as a supervisory priority, with the risk of administrative sanctions for any AML / CFT infractions at the SPV level and associated reputational damage for sponsors of such entities, interested stakeholders continue to look for an outsourced expert solution for the provision of MLRO oversight services.

MLRO Services for Schedule 2 Firms

In 2018, Section 108A of the CJA introduced a statutory requirement for Schedule 2 firms to register with the CBI. While the scope of the Schedule 2 regime is nuanced and requires Irish legal advice to determine if it applies to a given SPV, in-scope entities must comply with the CJA, including being able to demonstrate full oversight of AML / CFT outsourced activities.  The CBI conducted inspections of Schedule 2 firms in 2020, issuing a “Dear CEO” letter in December 2020, which outlined some of the common shortcomings among inspected firms from an AML / CFT perspective.

These deficiencies ranged from issues related to governance, business risk assessments, outsourcing and customer due diligence (“CDD”).  In terms of governance, firms often failed to demonstrate effective oversight, implementation, and management of their AML / CFT frameworks. The CBI also emphasised the

need for a robust assurance testing framework, and the need for AML / CFT matters to regularly feature on the agenda for board meetings.  Business risk assessments, which were either not in place at some firms or did not appropriately assess risks and exposures relevant to inspected firms, should be robust and commensurate with the nature, scale and complexity of business activities, according to the CBI’s expectations.

Where firms had outsourced AML / CFT activities to third parties, deficiencies were found in documenting formal arrangements, and the CBI highlighted the need for Schedule 2 firms to perform ongoing reviews and assessments of third-party providers.  An effective governance framework must extend to comprehensive oversight of outsourced AML / CFT activities, with robust assurance testing, reporting and monitoring.  Compliance with CDD requirements is also expected to be in place prior to processing transactions.  Boards and firms are ultimately responsible for CDD compliance and effective oversight of any delegated CDD process must be demonstrated.

AML / CFT Compliance Best Practice

The Maples Group’s MLRO services team in Ireland provides market-leading expertise in advising on regulatory expectations and providing guidance on best practice and key risks specific to the firm.  Our team also assists with oversight and assurance testing on outsourced service providers to ensure AML / CFT processes, CDD and risk assessments are in adherence with the CBI’s expectations, applicable legislation and other regulatory guidance.

While for SPV sponsors and their lead counsels, the overall compliance ask associated with Schedule 2 can initially seem significant, our experience is that once our best-in-practice oversight model is explained and the various AML / CFT teams are connected, a compliance operating model which is risk-based and appropriate to the legislative requirements and commercial drivers can be quickly agreed upon, with the result that the sponsor has clarity and peace of mind that the transaction and structure implemented is both efficient and robust.

With the responsibility regarding AML / CFT oversight among Schedule 2 firms in Ireland resting with the senior management of the firm (typically the SPV’s directors), sponsors establishing in-scope SPVs are increasingly realising the initial and long-term value of a reliable MLRO solution.  In response to market demand, the Maples Group’s Ireland MLRO services team has evolved its well-established model for investment funds to provide bespoke MLRO services to our Schedule 2 clients.  Our experienced team of qualified professionals, backed by the institutional infrastructure of our global network, is well positioned to provide MLRO support to clients to assist with any AML / CFT challenges and ensure clients’ AML policies and procedures are in accordance with CBI expectations and industry best practice.