The Domino Effect Of Regulatory Breaches

The settlement of a recent financial services regulatory enforcement action by the Central Bank of Ireland (CBI) highlights the interconnectedness of regulatory breaches. In brief, a failure of controls and policies can create a domino effect which triggers liabilities under the anti-money laundering/counter terrorist financing (AML/CTF) regime, client asset requirements and a finding that key frontline personnel are not fit and proper for their role.

The case concerned a firm authorised by the CBI as an alternative investment fund manager. A recent client (the real client) had placed funds for investment with the firm. A fraudster (the fake client) hacked into the real client's email account and impersonated the real client by sending redemption instructions to the firm. The firm's employee complied with the fake client's instructions notwithstanding a number of red flags – including that the redemption monies were directed to third party accounts, were in small