Risk Management Crucial in Financial Sector: Effective Measures to Prevent Money Laundering and Terrorist Financing
In a bid to prevent financial crimes such as money laundering and terrorist financing, international authorities have emphasized the importance of effective risk management measures in the financial sector.
Compliance with Regulations
Financial institutions are required to conduct customer due diligence (CDD) on all new customers, as well as existing ones where necessary, to ensure that they do not engage in illegal activities. If a financial institution is unable to comply with the relevant regulations, it should refrain from opening new accounts or commencing business relationships.
Record-Keeping
Financial institutions must maintain records of transactions for at least five years to enable swift compliance with information requests from authorities. These records must be sufficient to reconstruct individual transactions and provide evidence in cases of criminal activity.
Politically Exposed Persons (PEPs)
Financial institutions are required to take additional measures when dealing with PEPs, including:
- Enhanced ongoing monitoring
- Senior management approval for establishing business relationships
Correspondent Banking
Financial institutions should gather information about respondent institutions and assess their anti-money laundering/combating the financing of terrorism (AML/CFT) controls before establishing new correspondent banking relationships.
Money or Value Transfer Services
Countries must ensure that providers of money or value transfer services are:
- Licensed or registered
- Subject to effective monitoring and compliance with AML/CFT measures
New Technologies
Financial institutions and authorities must identify and assess the risks associated with new products and business practices, including those related to new delivery mechanisms.
Conclusion
Effective risk management is essential to prevent financial crimes and maintain the integrity of the financial system. By implementing these measures, financial institutions can ensure that they are not inadvertently facilitating illegal activities and maintaining the normal conduct of business.