Reliance on Third Parties: A Threat to Financial Stability
The Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) has conducted its Second Round Mutual Evaluation (MER) of Mozambique, revealing a concerning trend in the country’s financial sector. The evaluation found that many financial institutions in Mozambique rely heavily on third-party providers for critical services such as customer due diligence, transaction monitoring, and risk assessment.
A Convenient but Vulnerable Practice
While relying on third-party providers may seem convenient, it creates vulnerabilities that can be exploited by criminals to launder money or finance terrorist activities. The evaluation highlights the importance of ensuring the reliability of these third-party providers, which is crucial to the overall effectiveness of anti-money laundering (AML) and combating the financing of terrorism (CFT) measures.
Weighting and Conclusion
The reliability of these third-party providers is paramount. However, the evaluation found that many of these providers lack adequate controls and oversight, making it difficult to ensure their compliance with international standards.
Recommendations
To mitigate the risks associated with relying on third-party providers, financial institutions in Mozambique should:
- Establish robust internal controls and risk management processes
- Conduct regular due diligence on third-party providers
- Monitor transactions and report suspicious activities
The country’s regulatory authorities should also conduct regular monitoring and oversight of these providers to ensure their compliance with AML/CFT requirements.
Recommendation 18 - Internal Controls and Foreign Branches/Subsidiaries
The evaluation recommends that financial institutions in Mozambique establish internal controls and risk management processes to mitigate the risks associated with relying on third-party providers. This includes:
- Conducting regular due diligence on third-party providers
- Monitoring transactions for suspicious activity
- Reporting suspicious activities to regulatory authorities
Weighting: High
The implementation of robust internal controls and risk management processes is critical to ensuring the effective implementation of AML/CFT measures in Mozambique.
By adopting these recommendations, financial institutions in Mozambique can reduce their reliance on third-party providers and ensure the stability of their financial systems.