Media Article: Experts Warn of ML/TF Risks as Banks Face Regulatory Challenges

As the financial industry continues to grapple with the complexities of money laundering (ML) and terrorist financing (TF), experts are emphasizing the need for a robust legal and regulatory framework to mitigate these risks.

The Need for a Robust Framework

According to recent reports, banks must adopt a risk-based approach (RBA) to address ML/TF concerns, but this requires effective communication between regulators and financial institutions. The RBA, endorsed by international organizations such as the Financial Action Task Force (FATF), involves identifying and mitigating ML/TF risks in a proportionate manner.

Effective Communication is Key

Experts caution that this approach should not be misunderstood to mean that banks can adopt lax controls or ignore high-risk activities. “Competent authorities must provide guidance on how banks are expected to meet their AML/CFT obligations in a risk-sensitive way,” said a leading expert in the field. “Banks need to understand that a flexible RBA does not exempt them from applying effective AML/CFT controls.”

The Importance of Supervision

The article highlights the importance of supervision and the need for countries to take account of the need for effective supervision of all entities covered by AML/CFT requirements. This will support a level playing field between all banking service providers and prevent higher-risk activities from shifting to institutions with inadequate supervision.

Financial Inclusion: A Key Consideration

Experts emphasize that being financially excluded does not automatically equate to low or lower ML/TF risk, and that institutions should not apply simplified due diligence measures solely on the basis of a customer’s financial exclusion status. A RBA may help foster financial inclusion, especially in cases where low-income individuals experience difficulties accessing the regulated financial system.

Areas for Consideration

• Establishing specific cases for exemptions in the application of FATF Recommendations
• Allowing financial institutions to be more flexible in their application of CDD measures
• Allocating resources to areas of higher ML/TF risk by supervisors
• Discharging supervisory functions in a way that is conducive to the application of a RBA by banks

Conclusion

In conclusion, experts warn that ML/TF risks are a serious concern for the financial industry, and that a robust legal and regulatory framework, combined with effective supervision and communication between regulators and financial institutions, is essential to mitigating these risks.