The Central Bank of Ireland (CBI) has a statutory power to impose levies on regulated financial services providers (RFSPs). The purpose of the levy is to fund the relevant proportion of the cost of regulating RFSPs. The method of calculating a RFSP’s annual levy varies depending on the industry funding category within which the RFSP falls.
Historically, the method for calculating the impact categorisation for levy payment for Payment Institutions (PIs) and E-Money Institutions (EMIs) has been based on the CBI’s Probability Risk And Impact System (PRISM).
However, this impact categorisation is likely to change in light of the CBI’s proposed revised Levy Methodology. Under the revised Levy Methodology, firms will be charged a levy comprising of a flat fee and a variable element which reflects the prudential, conduct and money laundering and terrorist financing (ML/TF) risks attributable by the CBI to each PI / EMI.
In this article, we discuss the proposed changes to the levy, the next steps proposed by the CBI, and the anti-money laundering/ terrorist financing (AML/CTF) considerations that will be taken in account in determining a firm’s AML/CFT risk categorisation.
CBI’s Proposed changes to the Levy Calculation
On 16 February 2021, the CBI published a Consultation Paper seeking views on a revised methodology for calculating the levy payable by PIs and EMIs.
The Consultation Paper noted that the existing methodology needs to be updated to take account the different business models and the separate and significant prudential, conduct and ML/TF risks that can apply. The Consultation Paper provided, by way of an example, that a flat fee of EUR5,000 will apply to all authorised firms irrespective of size or risk. In addition, where a firm is rated as “Ultra High” risk on the CBI’s AML/CTF risk matrix, a separate flat fee of EUR375,000 will apply. This represents a significant change from the existing regime.
The Consultation Paper does not, however, expand on how a PI/ EMI would be ranked as “Ultra High” by the CBI and a number of responses to the Consultation Paper have requested clarification on how AML risk categorisations are applied.
Next steps with regards to the Revised Levy
The revised funding methodology will not come into force until after further development by the CBI and the publication of Regulations, which will hopefully include further clarity on the AML/CFT risk categorisation.
The CBI’s Feedback Statement to the Consultation Paper noted that: “Industry’s request for clarifications will be addressed though engagement with industry representatives in June/ July 2021. Ministerial approval of 2020 levy rates is expected in August 2021 and firms can expect to receive invoices in September 2021.”
In the meantime, we set out below some general factors that the CBI will take into account in their AML/CFT risk assessment.
Factors determining a firm’s AML/CFT risk categorisation:
The CBI implements a risk-based approach to AML and CFT supervision of credit and financial institutions. The CBI’s ML/TF Risk Assessment model currently assigns four ML/TF sectoral ratings: High; Medium High; Medium Low; and Low risk.
In determining AML/CFT risk categorisation, the CBI will have regards to the following factors:
- The ML/TF risks associated with the firm’s business models; and
- The overall quality of the firm’s AML/CFT control framework
- Nature, scale and complexity of the business;
- Types of customers;
- Distribution channels;
- Products and services; and
- Any other relevant factors
In its guidance, the FATF has identified some further risk factors applicable to new payment products and services (NPPS) which are set out as follows:
- non-face-to-face relationships and anonymity;
- geographical reach;
- methods of funding;
- access to cash;
- segmentation of services; and
- risk matrix.
Applying the above, and by way of illustration, firms which offer the following may have a higher risk rating: offering high risk products, services and transactions a large increase in customer base in a short period, expansion into higher risk jurisdictions, anonymous funding sources, a material change in distribution model (e.g. reliance on a large network of distributors or agents in a number of different jurisdictions, increased use of introducers or intermediaries and non-face-to-face CDD etc).
In short, an individual firm’s ML/TF risk categorisation depends on the specific ML/TF risk associated with its business model, quality of its AML/CFT control framework, supervisory engagements and other interactions with the CBI.
Having a robust AML/CTF framework is therefore crucial as it will potentially affect the AML/CFT risk categorisation and therefore the levy contribution payable.
We will publish further updates once further information is published by the CBI in relation to the revised Levy.