Financial Crime World

Risk Involved in Complying with New CDD and AML/CFT Guidelines

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New regulations have introduced significant changes to customer due diligence (CDD) and anti-money laundering/combating the financing of terrorism (AML/CFT) requirements, leaving reporting entities scrambling to ensure compliance. The updated guidelines introduce new risks and challenges that must be carefully navigated.

Verification of Customer Information

Reporting entities are now required to verify the existence of nominee directors, shareholders, or general partners, as well as legal form and proof of existence, ownership, and control structure. This verification must come from a reliable source, which may not necessarily be independent, depending on the level of risk involved.

Verification Sources

  • Reliable sources for verification may include government records, business registers, or other publicly available information.
  • The level of risk involved will determine whether an independent source is required.

Enhanced Customer Due Diligence (ECDD)

The new regulations expand the scope of ECDD to include existing customers and those conducting occasional transactions or activities where there are grounds for reporting suspicious activity. ECDD must be conducted as soon as possible after becoming aware of a potential suspicious transaction.

ECDD Requirements

  • ECDD applies to existing customers and those conducting occasional transactions or activities.
  • ECDD must be conducted as soon as possible after becoming aware of a potential suspicious transaction.

Risk Assessments and Compliance Programmes

Reporting entities must review and update their risk assessments and compliance programmes to reflect the new guidelines. This includes setting out policies, procedures, and controls for differentiating between the source of funds and the source of wealth, as well as for managing international wire transfers.

Compliance Programme Requirements

  • Reporting entities must review and update their risk assessments and compliance programmes.
  • Policies, procedures, and controls must be set out for differentiating between the source of funds and the source of wealth.
  • Controls must also be in place for managing international wire transfers.

Operational Challenges

The new regulations introduce a range of operational challenges, including:

Record-Keeping Requirements

  • Reporting entities must keep records of prescribed transaction reports for at least five years.

Vetting Agents and Employee Training

  • Adequate and effective procedures must be maintained for vetting agents.
  • Employees must be trained on AML/CFT matters.

Further Reform on the Horizon

Despite the challenges posed by the new guidelines, further reform is on the horizon. The Ministry of Justice has announced plans to introduce a new AML/CFT bill in 2026, which will aim to simplify compliance requirements and deliver a more risk-based approach to anti-money laundering and combating the financing of terrorism.

Benefits of Reform

  • Simplified compliance requirements.
  • More risk-based approach to AML/CFT.

Conclusion

Complying with the new CDD and AML/CFT guidelines is not without its risks. Reporting entities must navigate complex verification and ECDD requirements, update their risk assessments and compliance programmes, and manage operational challenges while also keeping an eye on further reform efforts. It is crucial that reporting entities prioritize compliance to avoid potential penalties and reputational damage.