Financial Institutions Urged to Develop Policies for Customer Acceptance, Due Diligence
Introduction
The Reserve Bank of Malawi has issued guidelines requiring financial institutions (FIs) to develop and implement policies and procedures for customer acceptance, due diligence, and ongoing monitoring. This is aimed at combating money laundering and terrorist financing (ML/TF).
Assessing ML/TF Risks
According to the guidelines, FIs must assess ML/TF risks and understand the inherent risks associated with their products and services. The resultant residual risk should be known and managed in line with the FI’s acceptable risk appetite. The assessment should also be documented and communicated to relevant stakeholders, including supervisors, financial intelligence agencies, law enforcement agencies, and other relevant parties.
Ongoing Monitoring
The guidelines emphasize the importance of ongoing monitoring and require FIs to update their risk assessments periodically to take into account dynamic changes to risk levels. This includes changes to products, services, policies, and procedures.
Products and Services Pose High Risk
Certain products and services have been identified as posing a high degree of risk, including:
- Electronic funds payment services
- Electronic banking
- Deposit products
- Foreign exchange
- Private banking
- Trust and asset management services
- Monetary instruments
- Trade finance
- Lending activities
- Account services
- Provision of safety boxes
- Life insurance policies with cash value surrender features
- Products that allow for assignment without the insurer’s knowledge
Customers Pose Specific Risks
FIs are required to use sound judgment to determine the level of risk associated with each customer. Certain customers may pose specific risks depending on:
- The nature of business
- Occupation
- Anticipated transaction activity
- Geographical location and services sought
Guideline Issuance
The guidelines were issued by the Reserve Bank of Malawi in October 2018 and aim to ensure that FIs have robust policies and procedures in place to prevent ML/TF activities. The guidelines also emphasize the importance of transparency and accountability, requiring FIs to document their risk assessments and communicate them to relevant stakeholders.
Annual Review
FIs must initiate and document a review of their:
- Relevant policies and procedures
- Risk assessment processes
- Training programs
Every year, an internal or external auditor must carry out this review to ensure that the FI’s compliance program is effective in preventing ML/TF activities.
Conclusion
The guidelines are designed to help FIs comply with anti-money laundering and combating the financing of terrorism (AML/CFT) regulations and prevent the misuse of their products and services for illegal activities.