On the 6th April 2022, the Financial Intelligence Analysis Unit (‘FIAU’) has issued a guidance note entitled ‘Common issues related to the role of a Money Laundering Reporting Officer’. The purpose of this Guidance Note is to provide additional complementary guidance on the role of the MLRO and to enhance the subject person’s understanding of the importance of the role of an MLRO and to ensure that anyone appointed as an MLRO is able to assume the role in an effective manner.
The main areas of concern highlighted by the FIAU in its Guidance Note can be split into six (i) Independence & Autonomy (ii) Conflicts of Interest (iii) Outsourcing, Secondment & Employment (iv)Knowledge, Skills & Expertise (v) Personal Liability and (vi) Record Keeping. The most salient features are being summarised hereunder.
(i) Independence & Autonomy
An MLRO must be allowed the necessary independence and autonomy to be able to carry out his duties. The MLRO carries out a very sensitive function and should therefore be allowed to do so without any undue influence. The MLRO handles certain sensitive information and therefore it is an unacceptable for an MLRO to be subject to pressures to disclose certain information. Sharing of confidential information is to be disclosed on a need-to-know basis only. MLROs should exercise their own discretion on whether or not they should submit a report to the FIAU and therefore they should not be subject to any pressure from the subject person, including its Board of Directors.
In cases where the MLRO feels that the necessary independence and autonomy is being undermined, the necessary steps should be taken to rectify this. Actions may be simply limited to clarifications and explanations made to the subject person, while others may require the MLRO to have recourse to the subject persons’ internal whistleblowing procedures or even to the external whistleblowing unit of the FIAU. There may be instances where the MLRO decides to resign. The MLRO should document the reasons for any action taken.
(ii) Conflicts of Interest
The individual appointed to act as an MLRO should avoid conflicts of interest, whether real or potential. In cases where there are no viable option such as for example where the MLRO has a conflict of interest with any other function which is carried out for the subject person, it is important for there to be regular independent checks and reviews to ensure that policies, control and procedures are adhered to.
(iii) Outsourcing, Secondment & Employment
The function of an MLRO cannot be outsourced or seconded except in the limited scenarios outlined by the Implementing Procedures. Therefore such a role can only be assumed by an officer or an employee of the subject person. The MLRO can also be employed on a part time basis, however its is important that subject persons establish and ensure that the MLRO is able to carry out the functions in an effective manner when working with different subject persons on a reduced basis. Issues of confidentiality and time commitment are crucial aspects to consider. The same applies when the individual holding the post of an MLRO has other roles within the subject person. It is the responsibility of the subject person to ensure that from time to time it reconsiders the effectiveness of such an arrangement.
(iv) Knowledge, Skills & Expertise
An MLRO must have the necessary seniority and command and therefore must be knowledgeable of the ML/FT risks faced by the subject person and of the measures, policies, controls and procedures implemented to mitigate those risks. Therefore a subject person must understand the individual’s expertise, experience, skills and qualifications in the area of ML/FT before deciding to appoint such an individual as an MLRO. The appointment of an MLRO may in certain cases require the approval of another supervisory authority such as the MFSA, but this does not mean that the effectiveness by which the MLRO carries out its duties cannot be questioned by the FIAU. The FIAU usually questions and considers whether the MLRO is fit for purpose based on what it sees during its supervisory activity and how effective the MLRO fulfils his obligations and tasks on a day-to-day basis. It is important that the MLRO is also provided with the necessary training opportunities so as to keep abreast and up to date with developments in AML/CFT.
(v) Personal Liability
By means of recent amendments to the regulations (PMLFTR), the FIAU was empowered to impose administrative penalties on the MLRO and to recommend to any supervisory authority for an individual to be suspended or precluded from exercising the role of an MLRO. The personal liability of the MLRO is intended to amongst others to (i) ensure that persons who do not possess the necessary skills, knowledge and expertise to fulfil such an onerous role are discouraged from doing so (ii) to encourage MLROs to keep abreast of any developments in the field of ML/FT (iii) to ensure MLROs dedicate sufficient time to fulfil their obligations with the necessary level of skill and care and (iv) to hold MLROs accountable for any AML/CFT contraventions.
Needless to say, this has created new and additional difficulties in a market where resources are limited since this has deterred a number of persons from taking on such a role. However the PMLFTR sets out the circumstances under which the liability of an MLRO may be triggered. Two elements need to be present (a) there has to be a breach by the subject person of its AML/CFT obligations and (b) the MLRO must have contributed to or caused the said breach wilfully or through gross negligence.
The Guidance provides a non-exhaustive list of instances where the FIAU would consider the imposition of an administrative penalty on the MLRO. These include instances where the MLRO repeatedly fails to reply or replies late to requests made by the FIAU, the MLRO does not bring to the attention of the subject person that any additional resources are required to carry out the functions in an effective manner, the MLRO does not bring to the attention of the subject person blatant issues with respect to its AML/CFT programme and where the MLRO does not take remedial action.
(vi) Record Keeping
The Implementing Procedures lay down directions about which records need to be kept with respect to any decision taken by the MLRO when considering internal reports and deciding if a report needs to be filed with the FIAU. Records should amongst others, be kept in order and in a manner that easily retrievable and should contain sufficient information explaining the reasoning behind the decision/s taken by the MLRO.