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Financial Institutions to Adopt New Risk-Based Customer Due Diligence Program
The financial sector is set for a major overhaul as the revised Anti-Money Laundering and Combatting of Terrorism Financing (AML/CFT) Guideline comes into effect. The new guideline aims to strengthen the country’s fight against money laundering and terrorism financing by requiring financial institutions to adopt a risk-based customer due diligence program.
Background
The revised guideline was developed in collaboration with the Basel Committee on Banking Supervision, providing a framework for financial institutions to identify, assess, and mitigate risks associated with their customers. According to the guideline, financial institutions must conduct a gap analysis against the new requirements and submit an implementation plan to the Central Bank by July 13, 2018.
Key Provisions
- The revised guideline sets out examples of risk factors for specific sectors and provides guidance on the application of customer due diligence measures.
- Financial institutions are required to conduct a risk-based customer due diligence program to identify, assess, and mitigate risks associated with their customers.
- The Central Bank has been designated as the AML/CFT Supervisory Authority (SA) for financial institutions listed in the guideline.
Responsibilities
The SA’s primary responsibilities include: * Reviewing the compliance programs of all financial institutions * Approving Compliance Officers and Alternate Compliance Officers * Issuing guidelines to aid compliance with AML/CFT requirements * Receiving and reviewing annual external audit reports
Consequences of Non-Compliance
Failure to comply with the new guideline may result in the suspension or revocation of a bureau’s licence. The Central Bank is empowered to issue guidelines to aid compliance with AML/CFT laws and regulations, and can take proportionate and dissuasive regulatory action against non-compliant financial institutions.
Key Concepts
Money laundering is the process by which criminals disguise the illegal origin and ownership of funds derived from criminal activities. The money laundering process involves three main stages: placement, layering, and integration.
Terrorism financing is the process by which funds are provided to an individual or group to finance terrorist acts. The key difference between money laundering and terrorism financing is that with money laundering, the person seeks to disguise the origins of illicit funds for a profit motive, while in contrast, a person funding terrorism may use legitimately-held funds to finance their activities.
What This Means for Financial Institutions
The revised AML/CFT Guideline presents an opportunity for financial institutions to strengthen their risk management practices and ensure compliance with the country’s anti-money laundering and combatting of terrorism financing laws. By adopting a risk-based customer due diligence program, financial institutions can better identify and mitigate risks associated with their customers, and contribute to a safer and more secure financial system.
Contact
For more information on the revised AML/CFT Guideline, please contact the Central Bank or your local regulatory authority.