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Japan’s Financial Institutions Face Greater Scrutiny Over AML/CFT Controls
Financial Action Task Force (FATF) report warns Japan’s financial institutions, as well as designated non-financial businesses and professions (DNFBPs), to expect increased scrutiny over anti-money laundering (AML) and counter-terrorism financing (CFT) controls.
FATF Report Highlights Areas of Concern
While Japan has a good understanding of the main elements of money laundering and terrorism financing risks, there are areas where the national risk assessment and other assessments could be improved. The report notes that:
- Some financial institutions have a “reasonable understanding” of their ML/TF risks
- Others have a limited understanding, which impacts the application of the risk-based approach to money laundering recommended by FATF
- DNFBPs, including casinos, real estate professionals, and law firms, have a low level of understanding of ML/TF risks and their AML/CFT obligations
- Virtual asset service providers (VASPs) in Japan apply only basic AML/CFT requirements
Japanese Government Responds with Plans for Improvement
The Japanese government has acknowledged the need for improvement and intends to:
- Set up a cross-agency team, including the Financial Services Agency (FSA) and the Justice Ministry, to target money laundering
- Submit proposed legislation to parliament in 2022 to introduce tougher penalties for money laundering offenses and deficiencies in controls
Technology and Intelligent Data Analysis Key to Effective AML/CFT Processes
The FATF and Japanese Financial Services Agency (JFSA) agree that technology and intelligent use of data are essential for efficient and effective AML processes. New digital technologies, including artificial intelligence and machine learning, can make AML and CFT measures faster, cheaper, and more effective.
Four Essential Elements of Best Practice
Financial institutions in Japan can protect themselves and ensure compliance with regulations by adopting the following four essential elements of best practice:
- Make use of technology: Implementing new digital technologies, such as artificial intelligence and machine learning, can help identify, understand, and manage money laundering risks.
- Adopt a risk-based approach: Moving away from static analyses of pre-determined risk factors and towards real-time customer or transactional risk assessments can be more effective and efficient.
- Update and upgrade: Keeping software up to date by upgrading when necessary and updating regularly is essential for comprehensive protection.
- Get the most out of your data: Utilizing structured and unstructured data from internal and trusted external sources can provide institutions with the latest information they need to verify identity, accounts, and manage risks effectively.
LexisNexis Risk Solutions Offers Advanced Financial Crime Screening Solutions
Organizations in Japan have much to gain from adopting advanced solutions, helping to protect not only themselves but also Japan’s reputation as a leading financial center. LexisNexis Risk Solutions offers dependable watch list data and advanced financial crime screening solutions to help institutions review their current processes and achieve greater effectiveness in complying with regulations and operational efficiency.