Derville Rowland: The foundations for AML partnership in Ireland
Remarks by Ms Derville Rowland, Deputy Governor of the Central Bank of Ireland, at
the Future of Financial Intelligence Sharing Event, Dublin, 25 September 2024.
* * *
Good morning. It is a pleasure to be here with you today at this Future of Financial
Intelligence Sharing event to discuss the development of Partnerships for Information
Sharing under the EU's new AML Regulation.
We are at an inflection point in the journey of financial crime prevention. On the one
hand, criminal networks in Europe are increasingly seeking out new opportunities for
their own interests and exploiting new technology to grow their operations and launder
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money faster than authorities can keep up. The increasing speed of deception and the
complex spectrum of financial crimes is extremely challenging for authorities and law
enforcement alike - and as we know, can have devastating effects on the lives of
innocent citizens.
On the other hand, the creation of the EU Authority for Anti-Money Laundering and
Countering the Financing of Terrorism AMLA - offers us a unique opportunity to grasp
the nettle of regulatory fragmentation and eliminate the weak points in the current
European AML/CFT Framework. I have spoken previously about what is required to set
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up AMLA for success. But in terms of today's topic, I would highlight 3 things that are
required to make the new AML package a success.
Firstly, AMLA and national supervisors need to encourage and support the
establishment of Partnerships for the Sharing of Information.
Secondly, the responsibility for making Partnerships for Information Sharing work under
the AML Regulation does not rest on Authorities alone. Partnerships are not possible
without the private sector playing its part.
Thirdly, AMLA and national authorities, including law enforcement, must work in
collaboration to raise standards and act as a catalyst for innovative solutions - including
around data sharing - to support the fight against money laundering and terrorist
financing.
As you may be aware, a central theme of the Central Bank's Strategy is being Future
Focused. This is why we are evolving our regulatory frameworks and structures to
move towards a system of truly integrated supervision (prudential, conduct, AML/CFT)
which we believe will strengthen our abilities to protect consumers and investors. Being
Future Focused also means being focused on technology, of course. We recognise the
many potential benefits and opportunities that technology brings to financial services,
consumers and investors in Ireland and in Europe. It is important that these benefits
can be realised, whilst also ensuring that the risks are well understood and managed -
including the risk that these new technologies are used by criminal actors for illicit
purposes. Regulation plays a crucial role in the safe, and therefore enduring, adoption
of innovation into the system.
Innovation has brought in new entrants, new products and new ways of serving
customers and the economy. As a result, technological innovation continues to be a
focus for the Central Bank. This is one of the reasons why we have enhanced our
innovation facilities, so that we can continue to engage, learn and develop a deeper
understanding of the ecosystem, the opportunities, the benefits and the risks. Our goal
is to evolve and iterate so that we continue to regulate and supervise effectively.
In the context of AML, history has however taught us that no system is entirely 'future
proof' and so we must be permanently vigilant. Everyone will be well aware that since
the first AML Directive was enacted in 1991, the legislative landscape has continuously
developed in line with our understanding of the ML/TF risks. This process of evolution
will need to continue beyond the establishment of AMLA and the introduction of the
single rulebook. The reality is that no single authority or piece of legislation can
contemplate every ML/TF risk or close every loophole. We cannot wipe out financial
crime - any more than we can wipe out car theft, shop-lifting or burglary. But I believe
that the establishment of AMLA - working in partnership with national authorities - and
the new EU AML/CFT framework, will enable us to become as effective as possible at
reducing its impact.
Supervisors and law enforcement authorities alike have long been pointing to the need
for financial institutions to share information to combat global criminal networks. There
have been a number of initiatives at European level designed to enhance cooperation
and the sharing of information. These range from AML/CFT supervisory colleges to
Public Private Partnerships such as Ireland's Joint Intelligence Group and the UK's
Joint Money Laundering Intelligence Taskforce (JMLIT). While these initiatives are
welcome, the fact remains that the data held by credit and financial institutions is the
most useful in the detection and prevention of financial crime.
The inability of private sector operators to share real time financial crime information
with each other is a gap in the system that is actively exploited by criminals.
As pointed out by the Institute of International Finance, the legal limitations imposed on
the sharing of financial crime information "are entirely at odds with the realities of
criminal operations, which are not bound by - and indeed actively exploit - international
borders to evade civil and criminal sanctions. This undermines law enforcement's ability
to build a picture quickly and comprehensively. It also undermines financial institutions'
ability to fully understand their exposure to financial crime risk at a global level".
Not only do criminals operate without regard to borders, they also routinely use multiple
institutions to launder their ill-gotten gains. Consequently, it is increasingly difficult for a
single private sector operator to identify suspicious activity in the absence of all the
pieces of the "jigsaw". Information sharing among private sector operators therefore has
the potential to improve the quality and accuracy of suspicious activity reporting. This
can ultimately reduce the operational burden in processing and analysing large
amounts of low quality data that historically has resulted in large volumes of false
positives.
Some countries - the UK, the US and Singapore - have taken the lead in enabling
information sharing between private sector operators. America's Patriot 2001 Act is
often described as the gold standard on information sharing. Singapore's digital
platform - called COSMIC - enables six major commercial banks to securely share with
each other information on customers who exhibit multiple "red flags" that may indicate
potential financial crime concerns.3
Article 75 of the new AML Regulation, while not as broad as the information sharing
provisions in the USA and Singapore, enables for the first time the sharing of certain
confidential information between private sector operators under the auspices of what
are known as "Partnerships for Information Sharing".
As one would expect, Article 75 contains a number of caveats and establishes a
number of important guardrails designed to strike the balance between effectively
combatting money laundering and terrorist financing and protecting the privacy and the
data of all EU citizens. One such guardrail is the requirement that information can only
be shared within a Partnership provided the information relates to customers deemed to
be higher risk and the information sharing is strictly necessary for the purposes of
meeting AML/CFT obligations.
Another safeguard is the requirement that Partnerships for Information Sharing must be
verified in advance of their establishment by the AML/CFT supervisory authorities in
collaboration with Data Protection Authorities.
Successfully navigating the complex set of safeguards and fully realising the full
potential intrinsic in Partnerships for Information Sharing will require a coalition of actors
working in unison and with ambition.
So what specifically will be required of this coalition of actors? Let me start with the role
of AML/CFT supervisors.
In the first instance, it is essential that national AML/CFT supervisors encourage the
establishment of Partnerships for the Sharing of Information through the development of
clear guidance in addition to a verification process that is accessible, transparent, and
capable of evolving over time. At the Central Bank, notwithstanding the fact that the
AML Regulation will not be applicable until July 2027, work is well underway on
developing the necessary framework and governance procedures.
The verification process will require not only the review of the application to ensure that
it conforms with the requirements of Article 75 but will also require the Central Bank to
consult our colleagues in the Office of Data Protection Commissioner in relation to the
Data Protection Impact Assessments ("DPIA"). It will also be necessary to for the
Central Bank to consult with the Financial Intelligence Unit where necessary.
In addition to fulfilling our statutory role in verifying Partnerships for Information Sharing,
in my view there is an additional and equally important role that AML/CFT supervisors
must play in order to realise the full potential of Article 75 AML Regulation. That is our
role in fostering and supporting the development and adoption of technologies that
facilitate the sharing of sensitive information through the use anonymisation
technologies. The so-called Privacy Enhancing Technologies (PETs) have the potential
to revolutionise information sharing between private sector operators. AML/CFT
supervisors such as the Central Bank of Ireland can, I hope, act as a catalyst for the
development and implementation of such technologies.
One such way the Central Bank can do this is by continuing to enhance our
engagement with innovation in financial services. In 2018, we launched the Innovation
Hub for firms to engage directly with the Central Bank on innovation. Since the launch
of the Innovation Hub, the innovation ecosystem has continued to develop at pace in
Ireland and abroad. In line with the continuous development of the innovation
ecosystem, we also have continued to deepen our approach by enhancing our
Innovation Hub and outreach programme.
This involves, firstly, enhancing the role of our Innovation Hub to deliver deeper, clearer
and more informed engagement with the innovative ecosystem. Secondly, we are
establishing an Innovation Sandbox Programme to inform the early stage development
of selected innovative initiatives which are consistent with our public policy objectives.
In July, we announced the theme of our first Innovation Sandbox Programme that is
very relevant to our discussion today, that of combatting financial crime . The Sandbox
Programme will focus on the use of innovative technology to foster and develop
solutions that minimise fraud, enhance AML/CFT frameworks, and improve day-to-day
transaction security for consumers.
As part of our announcement of the theme, we issued a set of Problem Statements for
interested applicants to consider. One such Problem Statement deals with information
sharing within the financial system, and how technology providers and other
stakeholders can enhance the effectiveness of AML/CFT efforts.
Today, the Central Bank is publishing a Call for Applicants to our Sandbox Programme.
We are also making available on our website additional guidance on applying for the
programme, an application form and some anticipated Frequently Asked Questions. If
you are a firm developing a product or service that uses innovative technology to
combat financial crime, I would invite you to consider making an application. More
information on the Sandbox Programme can be found on the Central Bank's website.
The Sandbox Programme will commence this December and will take place over the
following six months.
As with our Sandbox, the responsibility for making Partnerships for Information Sharing
work under the AML Regulation does not rest on Authorities alone. Partnerships are not
possible without the private sector playing its part. It is for private sector operators to
decide on when it is appropriate to establish a Partnership and who the participants of
such a Partnership should be.
It will be for the participants to demonstrate how the information that it is proposed to be
shared is necessary for the compliance with AML/CFT obligations, relates to high risk
customers and is compliant with the Article 75 of the AML Regulation. Participants must
also be in a position to demonstrate the measures that have been put in place to ensure
that all instances of information sharing will be appropriately documented and that
Financial Intelligence Unit consent will be obtained where necessary. Importantly,
individual participants in a Partnership must be able to demonstrate that any decisions
made in respect of a customer/business relationship are not solely based on
information shared in a Partnership.
Let me conclude I would again highlight the 3 things we must do to make this a
success. Firstly, AMLA and national supervisors need to encourage and support the
establishment of Partnerships for the Sharing of Information . In my remarks today I
have given some examples of how we can do that. Secondly, the responsibility for
making Partnerships for Information Sharing work under the AML Regulation does not
rest on Authorities alone. Partnerships are not possible without the private sector
playing its part. And finally, AMLA and national authorities must work in collaboration to
raise standards and act as a catalyst for innovative solutions in the fight against money
laundering and terrorist financing.
I would like to thank you all for participating in today's event and for your continued
commitment to fight against financial crime. I truly believe that the use of innovative
technology to minimise fraud, enhance AML/CFT frameworks, and improve day-to-day
transaction security for consumers is critical to prevent criminal actors abusing the
financial system. The Partnerships for Information Sharing under the AML Regulation
have an important role to play in this regard and present a monumental step forward in
Europe's fight against financial crime. Today's event is an important first step in
realising this aim.
Thank you.
1
Europol (2023), European Financial and Economic Crime Threat Assessment 2023 -
The Other Side of the Coin: An Analysis of Financial and Economic Crime
(PDF 4.14
MB) .
2
Setting up the new EU Anti-Money Laundering Authority for success
Derville Rowland,
- Remarks by Deputy Governor Derville Rowland, European Anti-Financial Crime
Summit.
3
COSMIC stands for "Collaborative Sharing of Money Laundering/Terrorism Financing
(ML/TF) Information & Cases".