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Best Practices for Implementing AML/CFT Standards in French Overseas Territories
The fight against money laundering and terrorist financing is a major challenge for financial institutions. In this article, we will identify key areas to explore when setting up risk assessment frameworks for anti-money laundering (AML) and combating the financing of terrorism (CFT), as well as why these risks are essential to integrate into your institution’s risk mitigation program.
Risk Assessment for Money Laundering
According to the Financial Action Task Force (FATF) and other authorized sources, a risk-based approach should be the cornerstone of an effective AML/CFT system. Financial institutions must identify money laundering risks in the following areas:
- Transaction processing
- Client account management
- Relationships with counterparties
The use of technology to build risk assessment methodologies and processes helps financial institutions comply with the latest AML/CFT regulations, particularly in terms of implementing preventive and detective controls.
Risk Assessment for Sanctions
When setting up a solid sanctions program, best practices recommend measuring both the quantity of sanction risk and the control program of the institution. According to the Federal Financial Institutions Examination Council (FFIEC), a bank’s risk assessment against sanctions should include an understanding of the following areas:
- Transactions with embargoed countries
- Relationships with suspect counterparties
- International fund transfers
The ACAMS Risk Assessment Module is designed to respond to current regulatory environments and recent requirements. This method provides financial institutions with an industrial standard for assessing sanctions risks and managing these risks through preventive and detective controls.
Risk Assessment for Suspicious Activity Reporting
A fundamental component of the national AML/CFT program is a robust suspicious activity reporting regime. Financial institutions are expected to have their own programs to respond to national laws and regulations on AML/CFT.
The authorized source for suspicious activity reporting CFT/AML comes from the FATF, specifically Recommendation 20 - Reporting Suspicious Transactions. This recommendation states:
“If a financial institution suspects or has reasonable grounds to suspect that funds are derived from criminal activity, or are related to terrorist financing, it should be required by law to report its suspicions promptly to the Financial Intelligence Unit (FIU).”
In response to FATF Recommendation 20, most jurisdictions worldwide, including major banking countries, have adopted rigorous suspicious activity reporting regimes. Regulatory controls at the jurisdictional level include examinations to ensure compliance with laws and regulations governing suspicious activity reporting.
The objective of the ACAMS Suspicious Activity Reporting Program is to provide financial institutions with the ability to evaluate and report their residual risk related to their suspicious activity reporting programs (SARs). These programs are also known as SMRs or STRs, but all have the goal of reporting unusual or suspect financial activity to competent authorities in a country.