Financial Institutions Must Implement Strong AML/CFT Measures to Mitigate ML/TF Risks
The Reserve Bank of Malawi has issued guidelines on Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) for financial institutions in the country. These guidelines aim to strengthen the fight against money laundering and terrorist financing by providing a framework for financial institutions to identify, assess, and mitigate ML/TF risks.
Guidelines for Financial Institutions
Policies and Procedures
- Financial institutions must develop and implement policies and procedures to control identified inherent risks.
- The result of these efforts should be known and managed in line with the institution’s acceptable risk appetite.
- Financial institutions are required to understand and demonstrate their assessment to other stakeholders, including supervisors, law enforcement agencies, and other relevant parties.
Documentation and Communication
- Financial institutions must document their analysis of ML/TF risks and communicate it to relevant business lines, the board, and all relevant staff.
Compliance Programs
- Financial institutions are required to have compliance programs in place, which include:
- Initiating and documenting a review of relevant policies and procedures, risk assessment processes, and training programs every year.
- Conducting an annual review by an internal or external auditor.
Identifying ML/TF Risks
- Financial institutions are required to identify specific products, services, customers, delivery channels, and geographic locations that pose ML/TF risks.
- Risks vary depending on specific characteristics of sources of illegal activity, including:
- Number and volume of transactions
- Nature of customer relationships
- Face-to-face or electronic banking interactions
Ongoing Risk Assessment
- A risk assessment process must be ongoing to remain effective.
- Financial institutions are required to update their risk assessment periodically, at least yearly, to take into account dynamic changes to risk levels.
High-Risk Products and Services
- Electronic funds payment services
- Electronic banking
- Deposit products
- Foreign exchange
- Domestic and international private banking
- Trust and asset management services
- Monetary instruments
- Foreign correspondent accounts
- Trade finance or letters of credit
- Lending activities
- Account services
- Provision of safety boxes
- Life insurance policies with a cash value surrender feature
- Products that allow for assignment without the insurer being aware that the beneficiary of the contract has been changed until a claim is made.
Customer Risk Factors
- Financial institutions must consider customer risk factors, including:
- Customers’ geographical location
- Services they seek
- Certain customers may pose specific risks depending on the nature of business, occupation of the customer, or nature of anticipated transaction activity.
Consequences of Non-Compliance
- Financial institutions that fail to comply with these guidelines face severe consequences, including:
- Fines
- Penalties
- Reputational damage
Conclusion
The guidelines issued by the Reserve Bank of Malawi are a crucial step in strengthening the fight against money laundering and terrorist financing in the country. They demonstrate the country’s commitment to international best practices in AML/CFT and emphasize the importance of financial institutions implementing strong measures to mitigate ML/TF risks.