Financial Crime World

Integrated Approach to AML/CFT and KYC Policy for Effective Implementation

Background

Nepal Rastra Bank has introduced an integrated approach to Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) and Know Your Customer (KYC) Policy to strengthen its efforts against money laundering, financing of terrorism, predicate offenses, and other related financial frauds.

Objectives

Primary Objective

Establish a robust internal control system for AML/CFT compliance measures, in line with legal requirements, regulatory standards, and international banking practices.

Specific Objectives:

  • Develop a sound mechanism for AML/CFT compliance measures
  • Adopt a risk-based approach (RBA) and functional adequate system controls
  • Establish a robust customer identification system through the effective implementation of KYC and Customer Due Diligence (CDD)
  • Develop a mechanism against suspicious transactions and ensure stronger monitoring and reporting to regulatory bodies

Regulatory Requirements

Banks and financial institutions are required to apply a risk-based approach to identify, assess, monitor, manage, and mitigate AML/CFT risks. The risk management framework should be based on:

  • Countries’ reports on national and sectoral risk evaluation
  • Renowned international institutions’ reports on AML/CFT
  • Business relationships
  • Nature of transactions
  • Transaction thresholds

AML/CFT Compliance Framework

The bank will develop an annual plan and program to implement the AML/CFT system and conduct regular reviews and annual appraisals to ensure its functionality, effectiveness, and further enhancement. The framework includes:

  • Standard procedures for screening customers while onboarding
  • Obtaining KYC information
  • Risk profiling
  • Customer due diligence
  • Transaction monitoring
  • Due diligence of correspondent banks
  • Threshold transaction reporting
  • Suspicious activity and transaction monitoring and reporting
  • Screening of counterparty in cross-border trade and remittance transactions
  • Implementation of instructions from law enforcement agencies
  • Maintaining confidentiality of customer’s information
  • Retention of records
  • Training and capacity building of human resources

Know Your Customer/Customer Due Diligence Policy

The KYC policy is a process of identifying and verifying customers about their identity, address, transactions, profiles based on risk-based approach, and adopting required measures to protect the bank from being means of money laundering. It requires due diligence while establishing business relationships.

Standards for KYC/CDD:

  • No one shall be accepted as a customer or transaction without KYC completed satisfactorily.
  • No fictitious or anonymous accounts or transactions will be conducted, and no relationship will be established with shell banks or any ba