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Financial Institutions Urged to Strengthen AML/CFT Compliance
In an effort to combat money laundering and terrorist financing, financial institutions are being urged to strengthen their Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) compliance programs.
Regulatory Requirements
According to new regulations, financial institutions must demonstrate a commitment to an effective AML/CFT program by:
- Understanding their statutory duties
- Approving policies and procedures that take into account the risks they face
- Appointing a Compliance Officer
- Ensuring compliance with local laws and regulations
Risk Management
The guidelines emphasize the importance of risk management, requiring financial institutions to develop sound risk management programs that permit a thorough understanding of customers’ businesses and patterns of financial transactions. These programs must be designed to detect unusual and suspicious transactions and report them to the relevant authorities.
Key Requirements
Financial institutions are also required to formally document their policies and procedures, which should include measures such as:
- Developing internal policies and procedures for:
- Opening customer accounts
- Verifying customer identity
- Establishing business relationships with third parties
- Reporting suspicious transactions
- Recruiting staff with appropriate skills and knowledge to carry out AML/CFT compliance functions
- Implementing an ongoing training program to ensure employees understand their roles in preventing money laundering and terrorist financing
- Appointing a Compliance Officer responsible for coordinating and monitoring the institution’s AML/CFT program
Management Information and Reporting Systems
Financial institutions must establish management information and reporting systems to facilitate aggregate and branch-wide monitoring, as well as an effective independent risk-based oversight function to test and evaluate their compliance programs.
Emerging Technologies and New Payment Products
The guidelines also emphasize the importance of emerging technologies and new payment products in the fight against money laundering and terrorist financing. Financial institutions must review their policies and procedures regularly to ensure they remain consistent with changing business models and trends in money laundering and terrorist financing.
Risk-Based Framework
Financial institutions are required to develop a risk-based framework for their AML/CFT programs, which should be approved by the board of directors. This framework must assess the level of potential risk each client relationship poses to the institution and provide for the segregation of client relationships by risk categories.
The risk rating framework should include criteria such as:
- Customer type
- Products
- Country of domicile
- Complexity of ownership
- Source of business
- Conformity to client activity profile
Financial institutions must also have a process in place for approving changes to customer risk ratings and review their risk ratings regularly to ensure they remain accurate.
Conclusion
By implementing these guidelines, financial institutions can help prevent the misuse of their services for money laundering and terrorist financing, while also ensuring compliance with local laws and regulations.