Risk-Based Approach Crucial for Effective Money Laundering and Terrorism Financing Prevention
Mbabane, Swaziland - In a bid to combat money laundering and terrorism financing (ML/TF), the Financial Action Task Force (FATF) has emphasized the need for accountable institutions to adopt a risk-based approach in identifying, assessing, monitoring, managing, and mitigating ML/TF risks affecting their businesses.
Importance of Risk-Based Approach
According to FATF Recommendation One, accountable institutions must put in place appropriate processes to identify, assess, monitor, manage, and mitigate ML/TF risks. These risks include those that may arise from the development of new products, business practices, and delivery channels, as well as those associated with the use of new or developing technologies.
Risk Assessment Process
The risk assessment process is a critical component of this approach, requiring accountable institutions to consider various factors such as:
- The nature, size, and complexity of their business
- Type of customers and communities they serve
- Countries or jurisdictions where customers come from
- Products and services offered
- Delivery channels and business practices
- Type of institutions with which they have business dealings
- Countries in which they operate
AML/CFT Risk Management and Compliance Program
Accountable institutions are required to document their risk assessments as these serve as the basis for developing their Anti-Money Laundering and Counter-Terrorism Financing (AML/CFT) Risk Management and Compliance Program. The program must set out policies, procedures, and controls that enable the institution to effectively manage and mitigate identified risks.
Key Components of the AML/CFT Risk Management and Compliance Program
The program must include measures for:
- Identifying and verifying customers
- Conducting ongoing due diligence on business relationships
- Performing enhanced due diligence on higher-risk customers
- Determining whether prospective customers are politically exposed persons
- Implementing the program in all relevant business areas, including branches, subsidiaries, and operations in foreign countries
Oversight and Compliance
Board of Directors
The Board of Directors of accountable institutions has been tasked with overseeing compliance with the AML/CFT Risk Management and Compliance Program. The Board must ensure that the institution and its employees comply with the provisions of the Money Laundering and Terrorism Financing Prevention Act (MLTFP) and the institution’s AML/CFT Risk Management and Compliance Program.
Senior Management
Senior management, on the other hand, is responsible for exercising oversight on the day-to-day implementation of the AML/CFT Risk Management and Compliance Program to ensure its effectiveness in mitigating ML/TF risks. This includes:
- Ensuring that an appropriately qualified person of sufficient competence and seniority is appointed as the Anti-Money Laundering Officer (AMLO)
- Notifying the Authority of the appointment
Conclusion
The FATF has emphasized the importance of a risk-based approach in combating ML/TF, and it is crucial for accountable institutions to adopt this approach to prevent these illicit activities. By identifying, assessing, monitoring, managing, and mitigating ML/TF risks, accountable institutions can help protect the financial system from these threats and maintain public confidence.
Source:
- FATF Recommendation One
- Money Laundering and Terrorism Financing Prevention Act (MLTFP)
- Financial Services Regulatory Authority Act (FSRA) 2010