Financial Crime World

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Financial Institutions Must Strengthen AML/CTF Compliance as EU Directives Take Effect

In a bid to combat money laundering and terrorist financing, the European Union has issued new directives that require financial institutions to strengthen their anti-money laundering and counter-terrorist financing (AML/CTF) compliance measures.

New Directives Effective December 1, 2022

As of December 1, 2022, financial institutions must:

  • Appoint a compliance officer at the management level
  • Ensure that they have implemented effective AML/CTF policies and procedures
  • Conduct regular risk assessments
  • Monitor customer transactions for suspicious activity

Role of Management Body in AML/CTF Framework

According to the European Banking Authority (EBA), the role of the management body in the AML/CTF framework is crucial. The EBA guidelines state that the management body must:

  • Supervise, oversee and monitor the implementation of internal governance and control framework
  • Review the compliance officer’s activity report at least once a year
  • Assess the effective functioning of the AML/CTF compliance function at least once a year
  • Ensure that the management body has the knowledge, skills and experience necessary to identify assess the ML/TF risks

Customer Onboarding and Monitoring

Financial institutions must also ensure that their customers are properly onboarded and monitored for suspicious activity. This includes:

  • Verifying customer identity
  • Conducting regular reviews of customer transactions

Reporting Suspicious Activity

The new directives require financial institutions to report any suspicious activity to the relevant authorities. Failure to comply with these regulations can result in significant penalties, including fines and even imprisonment.

Proposed Directive on Criminal Offences and Penalties

The European Parliament and Council have also proposed a new directive on criminal offences and penalties for the violation of Union restrictive measures. The aim of this directive is to ensure that EU sanctions/restrictive measures are properly enforced across the EU in a standardized fashion.

This proposed directive includes provisions for:

  • A list of definitions of offences broadened to cover the circumvention of EU sanctions
  • Penalties for natural persons, including imprisonment and fines
  • Common basic standards for penalties for legal persons, including criminal or non-criminal fines

Key Takeaways

  • Financial institutions must appoint a compliance officer at the management level
  • Financial institutions must implement effective AML/CTF policies and procedures
  • Financial institutions must conduct regular risk assessments and monitor customer transactions for suspicious activity
  • Failure to comply with these regulations can result in significant penalties, including fines and imprisonment.