Financial Crime World

Financial Institutions Must Take Proactive Approach to Anti-Money Laundering and Combating Financing of Terrorism

A recent report by the Financial Action Task Force (FATF) emphasizes the importance of financial institutions taking a proactive approach to anti-money laundering (AML) and combating financing of terrorism (CFT). The report identifies high-risk countries and geographic areas that pose a significant threat to global stability and security.

Risk Assessment

The risk assessment process is a critical component of AML/CFT compliance. Financial institutions must conduct comprehensive assessments of ML/FT risks, taking into account the characteristics of their business environment and business strategy. The risk assessment should be conducted in a firm-wide and consistent manner with the involvement of the Board.

Expected Actions

Financial institutions are expected to:

  • Establish an enterprise-wide policy and specific methods for conducting risk assessments
  • Conduct comprehensive and specific evaluations of ML/FT risks, with the Board taking the lead in ensuring coordination and collaboration among all relevant departments
  • Analyze the status of suspicious transaction reporting, including quantitative information such as:
    • Number of reports by division
    • Location
    • Reporting factors
    • Detection scenario
  • Document the results of risk assessments and utilize them for developing measures necessary for risk mitigation

Risk Mitigation

Risk mitigation is a critical component of AML/CFT compliance. Financial institutions must implement effective measures to mitigate identified risks based on their level of risk exposure.

Customer Due Diligence (CDD)

CDD is a critical element of risk mitigation. It involves:

  • Identifying and assessing ML/FT risks with regard to a specific customer
  • Reviewing information about the customer and their transactions in light of the results of risk assessment
  • Determining measures necessary to mitigate identified risks

Financial institutions are expected to:

  • Collect and verify fundamental information about customers and their activities and transactions
  • Compare that information with the results of risk assessment and determine effective measures to mitigate identified risks
  • Undertake enhanced mitigation measures in cases where ML/FT risks are high

Conclusion

The FATF report highlights the critical importance of financial institutions taking a proactive approach to AML/CFT compliance. By conducting comprehensive risk assessments, implementing effective risk mitigation measures, and collecting and verifying fundamental information about customers, financial institutions can significantly reduce the risk of ML/FT activities and contribute to global stability and security.