Schedule 2 Registration In Ireland

In Ireland, Anti-Money Laundering (“AML”) and Counter-Terrorist Financing (“CTF”) laws are governed by the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010, as amended by Part 2 of the Criminal Justice Act 2013 and, more recently, the Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Act 2018 (the 2018 Act) (the “CJA”).

The 2018 Amendment Act was enacted to align Irish law with the Fourth Anti-Money Laundering Directive (“AMLD4”). However, the provisions regarding the beneficial ownership of corporate entities, as outlined in Article 30 of AMLD4, were implemented through a separate statutory instrument. The 2018 Act became effective on November 26, 2018.

The CJA mandates that unregulated firms must register with the Central Bank of Ireland for AML compliance. These firms are classified by the Central Bank as “Schedule 2 Firms”. A Schedule 2 Firm is an entity operating in Ireland that engages in one or more activities listed in Schedule 2 of the amended CJA.

While these entities usually do not need to register with or get authorisation from the Central Bank of Ireland (“CBI”), they are required to register with the CBI for AML purposes, unless specific exemptions apply. Under the CJA, these entities must comply with the same AML and CTF obligations as credit and financial institutions.

Although the Schedule 2 regime has been in place since 2010, it has gained more attention since the CBI implemented the registration requirement in 2018.

Notably, the registration requirement does not establish new categories of “designated persons” under Irish AML or CTF laws. The unregulated firms subject to this requirement have already been considered “designated persons” for AML/CTF purposes for several years and should already have an AML/CTF framework in place. However, they now need to register with the CBI and confirm their compliance with Irish AML/CTF legislation.

Scope of Schedule 2

To fall within the scope, a firm, individual, or Irish branch must be providing one or more of the specified services in Ireland from an Irish base. These services are identified by the Central Bank as “Schedule 2 activities”, which include:

1. Lending;

2. Financial leasing;

3. Payment services as defined in the Payment Services Directive;

4. Issuing and administering other means of payment (such as travellers’ cheques and bankers’ drafts) insofar as not covered by 3 above;

5. Guarantees and commitments;

6. Trading for own account or for account of customers in (a) money market instruments (cheques, bills, certificates of deposit, etc.), (b) foreign exchange, (c) financial futures and options, (d) exchange and interest-rate instruments, and (e) transferable securities;

7. Participating in securities issues and providing services relating to such issues;

8. Advising undertakings on capital structure, industrial strategy and related questions and advice as well as services relating to mergers and the purchase of undertakings;

9. Money-broking;

10. Portfolio management and advice;

11. Safekeeping and administration of securities;

12. Safe custody services; and

13. Issuing electronic money.

Irish SPVs and Schedule 2 Registration

In December of 2020, the CBI issued a “Dear CEO” letter highlighting AML compliance issues that Irish Special Purpose Vehicles (“SPVs”) falling within the scope of schedule 2 should be monitoring with care. Irish SPVs that fall within this scope include SPVs that are involved in activities such as lending, debt factoring or finance leasing. These issues, as set out in Appendix A of the letter, highlight the CBI’s findings and expectations with respect to Irish SPVs in scope of Schedule 2. We set out below, the issues that firms falling within the scope of schedule 2 needs to consider.

The letter states that firms need to show that AML is a regular topic at board meetings and that they have a system for tracking and updating relevant legislation. They must ensure their framework is updated promptly to maintain compliance. When outsourcing AML activities, firms must have written agreements that clearly define the responsibilities of all parties, including the Board. The Board should demonstrate full oversight of outsourced activities and ensure the Money Laundering Reporting Officer (“MLRO”) has a direct reporting line to the Board, providing detailed reports regularly. Firms must also monitor and document the progress of any management actions from reviews.

If a firm relies on a third party or parent entity for its AML business-wide risk assessment, it must address the risks and controls specific to the firm itself, not just those of the third party or parent entity. Firms must document their assessment of money laundering, terrorist financing and financial sanctions risks specific to their business, considering the nature, scale, and complexity of their operations. The AML business-wide risk assessment should be reviewed at least annually, with the Board's consideration and approval formally documented.

Additionally, firms must ensure their AML and CTF policies and procedures are tailored to their specific customers and business activities, reflecting the associated risks and complying with Irish legislative requirements. Policies and procedures should be reviewed at least annually and updated more frequently if necessary. The Board's consideration and approval of these policies and procedures must be documented.

Schedule 2 firms must also adhere to enhanced customer due diligence requirements by considering the identity of their customers. The guidance suggests that "loan noteholders" may be considered customers, requiring firms to assess AML risks from both loan noteholders and borrowers and conduct appropriate due diligence based on the risk level. Firms should ensure their customer due diligence policies and procedures are current and comply with Irish legislative obligations.

This enhanced due diligence extends to the firms’ policies and procedures with respect to identifying and escalating PEP and financial sanction alerts. These policies and procedures must include clear processes and reporting lines. If using screening tools, firms must ensure they are subject to oversight and ongoing testing to confirm their effectiveness. Firms should have detailed policies and procedures to help officers fulfil their obligations and report suspicions, including specifying the personnel to whom suspicions should be reported to. When relying on third parties for AML services, firms must ensure these third parties are appropriately overseen. The frequency of suspicious transaction reporting should be regularly reported to the Board.

Lastly, the firms training materials should be specific to the firm's activities and reflect the standards and practices necessary to meet its obligations. Any training processes should be reviewed to ensure all staff and directors receive appropriate training, with consideration for bespoke training for customer-facing staff, directors, and senior management. Training materials should be kept up-to-date and comply with Irish legislative requirements.

How We Can Help

Cafico International’s Legal and Compliance team provide safe hands to assist you in ensuring that you do not suffer financial or reputational harm as a result of non-compliance with local laws and regulations. We have significant experience in compliance with statutory regulatory reporting obligations including assistance with complying with the CJA. Senior members of our legal and compliance team have significant experience in acting as MLRO for a number of our clients’ entities that fall within the scope of schedule 2 services, including registration and ongoing compliance. For more information about Schedule 2 registration, or to find out how Cafico International can assist your business, please contact Máiréad Lyons.