Financial Crime World

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FSC AML/CFT Handbook Amendments: Strengthening Risk-Based Approach to Combat Money Laundering and Terrorism Financing

The Financial Services Commission (FSC) has introduced amendments to its Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) handbook, aimed at strengthening the risk-based approach to combat money laundering and terrorism financing in the financial sector.

Business Risk Assessment: The Foundation of a Risk-Sensitive Approach

The business risk assessment is a critical component of the AML/CFT regime. It enables financial institutions to identify, assess, and mitigate their risks related to money laundering and terrorist financing. The assessment should be comprehensive, covering all aspects of the institution’s operations, including its products, services, customers, and transactions.

Independent Audit: The Final Line of Defence

The independent audit is the financial institution’s final line of defence against AML/CFT risks. It provides an objective evaluation of the institution’s AML/CFT policies, procedures, and systems. The scope of the audit should be tailored to the institution’s specific risks and should test compliance in key areas, including:

  • AML/CFT policies and procedures
  • Internal risk assessment
  • Mitigating controls

Recent Findings: Strength of Controls and Risk Assessment

The FSC has released its latest inspection report, which highlights the strengths and weaknesses of the TCSP sector in terms of AML/CFT controls. The report shows that while there have been improvements in compliance with risk assessments and independent audits, there are still areas for improvement.

Key Findings:

  • 74% of financial institutions were found to have inadequate risk assessments, which did not consider all relevant risks.
  • Only 28% of institutions had commissioned independent audits, which did not cover all aspects of AML/CFT compliance.
  • The frequency and scope of independent audits varied widely among institutions.

Recommendations:

  • Financial institutions should prioritize the development of comprehensive business risk assessments that align with the National Risk Assessment (NRA).
  • Independent audits should be conducted regularly and cover all key areas of AML/CFT compliance.
  • Institutions should leverage on third-party auditors, including law firms, accounting firms, and compliance firms.

Conclusion

The amendments to the FSC’s AML/CFT handbook are aimed at strengthening the risk-based approach to combat money laundering and terrorism financing. Financial institutions must prioritize the development of comprehensive business risk assessments and independent audits to ensure that they are adequately prepared to address these risks. The FSC will continue to monitor the sector and provide guidance to financial institutions to help them improve their AML/CFT controls.