Azerbaijan Embarks on Risk-Based Approach to AML/CFT Regulations

In a move to strengthen its fight against money laundering and terrorism financing, Azerbaijan has adopted a risk-based approach towards customer due diligence. According to industry experts, this new approach will help the country’s financial system by recognizing that each entity has unique characteristics and requirements.

Regulatory Bodies

The Central Bank of the Republic of Azerbaijan, Financial Markets Supervision Authority (FMSA), and Financial Monitoring Services (FMS-AZ) are the primary regulatory bodies responsible for ensuring compliance with anti-money laundering (AML)/counter-terrorism financing (CFT) regulations in the country.

Compliance Program

Under this risk-based approach, designated service providers are required to develop and implement a comprehensive compliance program that takes into account:

• The unique nature of their market
• Corporate structure
• Clients
• Transaction types

This includes:

• Identifying and verifying customers and beneficial owners before establishing a business relationship
• Conducting ongoing due diligence
• Obtaining senior management approval for onboarding politically exposed persons

Internal Control Mechanisms

The regulators have emphasized the importance of having strong internal control mechanisms in place to prevent the legalisation of illegally acquired funds and the funding of terrorism. Entities are required to establish an internal audit process to ensure compliance with the system.

AML/CFT Program

Azerbaijan’s AML/CFT program is designed to have a defined connection between:

• Risk categorization
• Processes
• Policies
• Controls that address those risks

This approach recognizes that a “one-size-fits-all” solution may not be suitable in the financial sector.

Suspicious Activity Reporting

Designated service providers are also required to notify Financial Monitoring Services (FMS-AZ) regarding any suspicious activities and maintain appropriate records. These records must be held for at least five years, or more upon request from the relevant supervisory authority.

Enhanced Oversight

The country’s regulatory bodies have implemented several measures to enhance oversight of AML/CFT prevention systems, including:

• Strengthening licensing and supervision of the securities market
• Investment funds
• Insurance companies

Centralized Supervision

Financial Monitoring Services (FMS-AZ) was established in 2018 to centralize supervision and control, as well as coordinate activities in the Republic of Azerbaijan to deter money laundering and terrorism financing.

Expert Opinion

Experts believe that Azerbaijan’s risk-based approach towards AML/CFT regulations will help strengthen the country’s financial system and prevent illegal activities. “This approach recognizes that each entity has unique characteristics and requirements,” said an industry expert. “It allows for a more targeted and effective approach to preventing money laundering and terrorism financing.”