Financial Institutions Must Comply with AML/CFT Regulations Consistent with FATF Standards
The Financial Supervisory Commission (FSC) has recently issued new regulations requiring financial institutions to implement robust Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) measures in line with international standards set by the Financial Action Task Force (FATF). These regulations aim to prevent the misuse of financial systems for illegal activities such as money laundering, terrorist financing, and other financial crimes.
Key Requirements
Under the new regulations, financial institutions must:
- Establish a Risk-Based Approach: Identify and filter out customers, senior managerial officers, beneficial owners, or connected parties who are sanctioned under the Terrorism Financing Prevention Act or linked to terrorists or terrorist groups.
- Use a Consolidated Customer Database: Establish internal control procedures to ensure confidentiality of customer data. This includes using a database to consolidate customer information for AML/CFT purposes.
- Conduct Ongoing Monitoring: Use risk-based indicators, parameters, and threshold amounts to monitor accounts and transactions. Financial institutions must also review their policies and procedures regularly to stay updated on ML/TF trends and risks.
Additional Requirements
The regulations also require financial institutions to:
- Identify Politically Exposed Persons (PEPs): Apply enhanced Customer Due Diligence (CDD) measures when establishing business relationships with PEPs. This includes individuals who are or have been entrusted with prominent public functions by domestic governments, foreign governments, or international organizations.
- Life Insurance Business: Insurance companies and post offices engaging in simple life insurance business must take reasonable measures to identify and verify whether beneficiaries and their beneficial owners are PEPs before paying out policy proceeds.
Exemptions and Enhanced Scrutiny
Insurance agents and brokers are exempt from certain AML/CFT requirements, but must comply with enhanced scrutiny and reporting standards if they discover high-risk circumstances.
Record Keeping Requirements
Financial institutions must maintain records of all business relations and transactions with customers in hard copy or electronic form for at least five years or a longer period as otherwise required by law.
Importance of Effective AML/CFT Measures
The FSC emphasizes the importance of effective AML/CFT measures to prevent the misuse of financial systems and protect the integrity of the financial sector. Financial institutions must comply with these regulations to ensure their operations are consistent with international standards and to prevent reputational risks.
By implementing robust AML/CFT measures, financial institutions can help prevent illegal activities and maintain a strong reputation in the industry.