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Financial Institutions Urged to Develop Policies and Procedures to Mitigate Money Laundering and Terrorist Financing Risks

Lilongwe - The Reserve Bank of Malawi has issued guidelines on Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) for financial institutions, emphasizing the need to develop policies and procedures to control identified inherent risks.

Developing Policies and Procedures

According to the guidelines, financial institutions (FIs) should assess their money laundering and terrorist financing (ML/TF) risk exposure and develop policies and procedures to manage these risks. FIs are also required to implement ongoing monitoring and reporting mechanisms to ensure compliance with AML/CFT requirements.

Identifying High-Risk Products and Services

The guidelines emphasize the importance of identifying specific products, services, customers, delivery channels, and geographic locations that pose a high ML/TF risk to the FI. FIs should consider factors such as transaction volume, customer relationships, and interaction methods when preparing risk assessments.

Risk Assessment Process

  • The risk assessment process should be ongoing and updated at least annually to reflect dynamic changes in risk levels.
  • The guidelines highlight specific products and services that may involve a higher degree of ML/TF risk, including electronic funds payment services, foreign exchange, and trade finance activities.

Customers with Higher Risk Profiles

Regarding customers, FIs are advised to use sound judgment to determine the level of risk for each customer, considering factors such as geographical location, occupation, and anticipated transaction activity. The guidelines identify certain customers that may pose a higher risk, including:

  • Foreign financial institutions
  • Non-bank financial institutions
  • Individuals engaged in high-risk activities

Compliance Requirements

To ensure effective AML/CFT measures, FIs are required to:

  • Initiate and document reviews of their policies, procedures, and training programs annually.
  • An internal or external auditor must conduct this review every year.

Transparency and Accountability

The guidelines emphasize the importance of transparency and accountability, requiring FIs to understand and demonstrate their assessment processes to supervisors, law enforcement agencies, and other stakeholders as required.

Key Takeaways

  • Financial institutions should develop policies and procedures to control identified inherent ML/TF risks.
  • Risk assessments should be ongoing and updated at least annually to reflect dynamic changes in risk levels.
  • Specific products, services, customers, delivery channels, and geographic locations pose higher ML/TF risks.
  • FIs should use sound judgment to determine the level of risk for each customer, considering factors such as geographical location, occupation, and anticipated transaction activity.
  • Annual reviews of policies, procedures, and training programs are required.

Resources

  • Reserve Bank of Malawi Guidelines on AML/CFT for Financial Institutions (October 2018)
  • For more information, please contact the Reserve Bank of Malawi.