Financial Crime World

Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) Risk Management Framework

I. Introduction

The Financial Intelligence Unit (FIU) requires financial institutions to develop and implement effective AML/CTF risk management policies and procedures. This framework aims to identify, assess, manage, and mitigate Money Laundering (ML)/Terrorism Financing (TF) risks.

II. Risk Assessment

Financial institutions must conduct regular risk assessments to identify ML/TF risks associated with individual customers, products/services, delivery channels, and geographic regions. The risk assessment process involves:

  • Identifying potential ML/TF risks: Understanding the types of risks that could arise from customer relationships or transactions.
  • Assessing the likelihood of these risks occurring: Evaluating the probability of a ML/TF risk materializing.
  • Evaluating the impact of these risks if they materialize: Determining the potential consequences of a ML/TF risk occurrence.

III. Risk Levels

Based on the risk assessment, financial institutions can categorize their risks as:

  • Very Low: Low-risk customers or transactions with minimal ML/TF risks.
  • Low: Customers or transactions with some ML/TF risks, but considered low-risk overall.
  • Medium: Customers or transactions with moderate ML/TF risks that require regular monitoring.
  • High: High-risk customers or transactions with significant ML/TF risks that require enhanced due diligence measures.
  • Extreme: Extremely high-risk customers or transactions that pose a significant threat to the financial institution’s reputation and stability.

IV. Due Diligence Measures

Financial institutions must apply different levels of due diligence (DD) measures based on the risk level:

Enhanced DD Measures:

  • Obtain and verify additional information on the customer.
  • Update identification data regularly.
  • Obtain approval from senior management to commence or continue the business relationship.
  • Conduct enhanced monitoring of the business relationship.

Simplified DD Measures:

  • Verify the identity of the customer and beneficial owner after establishing the business relationship.
  • Reduce the frequency of customer identification updates.
  • Reduce ongoing monitoring and scrutinize transactions based on a reasonable monetary threshold.

V. Training and Information Management

Financial institutions must:

  • Provide training programs for staff to develop expertise in identifying ML/TF risks.
  • Develop an effective information management system that produces detailed and accurate financial, operational, and compliance data relevant to AML/CTF risk management.

VI. Documentation and Review

All AML/CTF risk management policies and procedures must be:

  • Documented: Written down in a clear and concise manner.
  • Up-to-date: Regularly reviewed and updated to reflect changes in regulations, risk assessments, or business operations.
  • Compliance-focused: Identifying processes relating to non-compliance, including reporting of suspicious transactions to the FIU.

By following this comprehensive framework, financial institutions can effectively manage ML/TF risks, ensure compliance with AML/CTF regulations, and maintain a strong reputation in the industry.