Financial Institutions Face Challenges in Implementing Anti-Money Laundering and Combating the Financing of Terrorism Requirements
The Financial Intelligence Authority (FIA) has reported a significant increase in suspicious transaction reports (STRs) filed by financial institutions in San Marino, indicating improved efforts to combat money laundering and terrorist financing. However, effective implementation of anti-money laundering (AML) and combating the financing of terrorism (CFT) requirements remains a challenge, particularly for legacy customers.
The Challenge of Implementing AML/CFT Requirements
According to FIA data, 190 STRs were received from January 1 to November 6, 2009, out of which 140 were filed by commercial banks. While this increase in STRs is a step in the right direction, more needs to be done to ensure that financial institutions are adequately addressing AML/CFT risks.
Areas for Improvement
The FIA has identified several areas where improvement is needed:
- Clearer Instructions: There is a need for clearer instructions on the implementation of AML/CFT requirements. Specifically, Instruction 2009/03 should be modified to clarify that the timeframes specified in it are only “at a minimum” and do not exclude the financial institutions’ obligation to conduct ongoing monitoring of business relationships.
- Customer Due Diligence: Financial institutions need to improve their customer due diligence processes, including verification of customer identity and the source of funds or income. Risk-based profiling of clients and thorough ongoing monitoring of already established business relations are critical to effectively implement CDD requirements.
Legacy Customers
The lack of detailed instructions and inspections prior to 2008 has led to a legacy of customers who were accepted in a context characterized by abnormal use of cash or other instruments that facilitated anonymity or made it difficult to trace the source of assets. As a result, many customers may have placed funds with banks and fiduciaries without providing adequate information about their beneficial ownership.
Recommendations
To address these challenges, the FIA has called for financial institutions to:
- Prioritize effective customer due diligence
- Ensure ready availability of comprehensive information and documents on clients and transactions
- Conduct ongoing monitoring of business relationships
These measures are not only essential for compliance with AML/CFT obligations but also critical for authorities to effectively undertake financial analysis, criminal investigations, and supervision.
Ongoing Monitoring and Guidance
The FIA will continue to monitor the situation and provide guidance to financial institutions to ensure that they are adequately addressing AML/CFT risks. The authority has emphasized the importance of ongoing monitoring of business relationships and the need for financial institutions to be vigilant in identifying and reporting suspicious transactions.
By prioritizing effective customer due diligence and ongoing monitoring, financial institutions can better mitigate AML/CFT risks and contribute to a safer financial system.