Financial Crime World

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Anti-Money Laundering (AML) and Countering Financing of Terrorism (CFT) Guidelines for Financial Institutions

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Consequences of Money Laundering/Financing of Terrorism

Money laundering and financing of terrorism have severe consequences that affect not only financial institutions but also the economy as a whole. Some of these consequences include:

  • Economic instability
  • Reputation damage
  • Loss of tax revenue
  • Distortion of currencies and interest rates

Risk-Based Approach

Financial institutions should adopt a risk-based approach to assess threats to which they might be exposed. This involves considering relevant inherent and residual risk factors at country, sectoral, FI, and business relationship levels.

Assessment Process

The assessment process should be based on specific operational and transaction data, internal information collected by the FI, and external sources of information such as National Risk Assessments and country reports from international organizations.

Risk Assessment Process

Financial institutions should develop a thorough understanding of inherent ML/FT risks present in their customer base, products, delivery channels, and services offered. This assessment should be ongoing to remain effective, with updates at least yearly to take into account dynamic changes to risk levels.

Products and Services Risk

The level of exposure to ML/FT risk may vary depending on the nature of products and services offered by financial institutions. Some high-risk products and services include:

  • Trade finance or letters of credit
  • Lending activities, particularly loans secured by cash collateral and marketable securities
  • Provision of safety boxes

Customers Risk

Financial institutions should use sound judgment to determine the level of risk for each customer, considering variables such as customers’ geographical location and services they seek. Certain customers may pose specific risks depending on the nature of business, occupation of the customer, or nature of anticipated transaction activity, such as foreign FIs, non-bank financial institutions, etc.

Compliance Programs

Financial institutions must have compliance programs in place, which should include:

  • A review of relevant policies and procedures
  • Risk assessment processes
  • Training programs

This review should be carried out by an internal or external auditor every year.