Financial Institutions Face Tougher Anti-Money Laundering Rules
International financial institutions are being urged to implement stricter customer due diligence (CDD) measures to combat money laundering and terrorist financing. The Financial Action Task Force (FATF) has issued new recommendations for financial institutions to conduct thorough CDD on all customers.
Customer Due Diligence (CDD)
The FATF recommends that financial institutions use a risk-based approach (RBA) when determining the extent of these measures. This means that institutions will need to assess the level of risk associated with each customer and apply more stringent CDD procedures as necessary.
- Identifying and verifying customer identities
- Understanding business relationships
- Monitoring transactions
Verifying Customer Identity
Financial institutions should also take reasonable measures to verify the identity of customers and beneficial owners, particularly in cases where there are doubts about the veracity or adequacy of previously obtained identification data. This includes:
- Determining whether a customer is a politically exposed person (PEP) or has been entrusted with a prominent function by an international organization
Record Keeping and Compliance
Financial institutions will be required to maintain detailed records of transactions and CDD information for at least five years, and make this information available to domestic competent authorities upon request.
Importance of Compliance
Experts warn that financial institutions must be vigilant in their efforts to combat money laundering and terrorist financing. The FATF’s recommendations provide a clear framework for financial institutions to follow, but it is up to each institution to ensure that they are implementing these measures effectively.
Consequences of Non-Compliance
Financial institutions that fail to comply with the FATF’s recommendations may face severe consequences, including fines and even criminal charges. The importance of compliance cannot be overstated, as non-compliance can have serious reputational and financial implications for institutions.
A Global Effort
The FATF’s recommendations are part of a broader global effort to combat money laundering and terrorist financing. International cooperation and coordination are essential in this fight, and the implementation of these measures is expected to play a crucial role in reducing the threat posed by these types of criminal activity.