Mateusz Pniewski

CEO @ TransactionLink

Global AML regulations: What you need to know in 2023

It’s extremely challenging for multinational businesses to get up to speed on global AML regulations. In this article, we’ll look at global AML regulations through a FATF lens

Anti-Money Laundering needs to be tackled at a national and international level. It’s extremely challenging for multinational businesses to get up to speed on global AML regulations. That’s why the Financial Action Task Force (FATF) was created.

In this article, we’ll look at global AML regulations through a FATF lens and ask how AML or compliance officers can ensure their business is compliant.

What is the Financial Action Task Force?

The Financial Action Task Force was established in 1989 to stop the financing of terrorism and money laundering on a global level. It is made up of 37 member governments, two regional organisations, and most of the world's main financial centres. Its main objective is to set international AML compliance standards and oversee their efficient execution. The FATF regularly publishes updated AML/CFT recommendations in order to accomplish this goal.

As a worldwide organisation, FATF collaborates with national authorities to create common minimum AML compliance programmes. Businesses do things differently across the world so governments have to manage distinct predominant compliance themes. As a result, threats vary depending on jurisdiction. Each nation's regulator addresses compliance concerns with pertinent AML laws and oversees the penalties for non-compliance.

Financial Action Task Force Recommendations

The 40 recommendations on the Financial Action Task Force list are the international guidelines against money laundering and terrorism funding. They give nations the framework they need to institute the necessary safeguards.

Member countries' financial institutions abide with FATF guidelines by:

  • Implementing Know Your Customer procedures for ID verification (KYC)
  • Putting the FATF's due diligence recommendations into practice
  • Keeping accurate records on high-risk clients
  • Regularly checking accounts for questionable financial activity and reporting it to the relevant governmental authority
  • Implementing strong penalties on individuals and associates

Sectors vulnerable to financial crimes include those in the legal or accounting professions, trust and company service providers, virtual asset and virtual asset providers, money or value transfer services, banking, payment services, securities, life insurance, and non-profits. Case-by-case risk-based approaches are also outlined for these sectors. Politically Exposed Persons, Beneficial Ownership, and Financial Sanctions are provided for in the recommendations to promote financial integrity and prevent the system from being used for financial crime.

Financial institutions and Global AML Regulations

Financial institutions all over the world need to establish strategies to make it easier for them to adopt and put AML measures into effect. Before they can contribute significantly to the fight against money laundering, they must show that they are in compliance with numerous regulatory organisations. Getting the business practices of financial institutions to comply with the relevant anti-money laundering (AML/CFT) laws and industry standards can be difficult. The difficulty tends to increase along with the size and complexity of the business. Past events have shown us that financial organisations that violate the law run the risk of paying hefty fines and damage their brand.

To fight financial crime, high-quality global AML processes are crucial for banks, fintechs, and other financial institutions. They are required to follow a set of guidelines and procedures known as the anti-money laundering programme in order to identify and stop money laundering and terrorist financing.

AML Compliance Programmes

An organisation should be able to identify and alert the proper authorities to any suspicious money-laundering activities, such as tax evasion and fraud, through the implementation of an AML compliance programme. An institution's programme should focus on both the risk posed by its customers’ and clients’ actions as well as the efficiency of its internal money laundering detection systems and controls.

An AML programme should be based on strong regulatory knowledge and be managed by staff who are skilled and informed enough to support compliance culture at all organisational levels. All AML compliance processes are designed to uncover financial crimes like tax evasion, money laundering, and financial fraud. Two crucial must-dos to achieve these goals are: 

  1. Implement credible reporting: With a reliable reporting system, it’s quick and easy to immediately alert the necessary authorities to money laundering activity.
  2. Manage high-risk clients: To identify problematic profiles and take prompt corrective action, financial institutions must evaluate the profiles of their clients. They can use tools to carry out actions like customer due diligence and enhanced due diligence. 

Steps to Create a Global AML Program

The most important AML compliance components that a financial institution must adopt are:

Appoint a Compliance Officer

For your business to be compliant with global AML regulations, you need to have a compliance officer that is knowledgeable about:

  • regulatory sources of data
  • compliance and AML tools
  • global AML issues

A compliance officer will deal with all queries and issues relating to the compliance programme. This ranges from the creation of the programme, to staff training, auditing, and so much more.

Risk Assessment

Based on each customer's unique credentials, assessments of money laundering and terrorist financing activity can assign relative scores and classify hazardous clients into different threat tiers. Other things to think about in this context are high-risk nations, politically exposed individuals (PEIs), due diligence reports, and ultimate beneficial owners (UBOs). With global AML regulations, the relevant AML jurisdictions define the due diligence procedure so these need to be tailored accordingly.

Internal Controls & Procedures

The ability of the financial institution's policies, practices, and processes to accomplish AML compliance globally should be assessed as part of the internal controls evaluation. This set of procedures includes both structural and people aspects. Internal roles should be distinct, and protocols should follow safe practices like dual controls and task segregation. The core of AML rules is mandated reporting, which necessitates the design of systems to produce these reports as well as the importance of record-keeping and retention.

Customer risk assessments must be put in place as part of the onboarding procedure and updated if new, pertinent information is obtained. An example of this could be a customer moving into a high-risk region. A KYC programme is a crucial first step in the process of gathering data with a focus on the kinds of goods and services, the anticipated pattern of activity in terms of transaction types, dollar amounts and transaction frequency, the location of the business and financial activity, and the status of high-risk individuals.

Independent Audit

Effective global AML compliance procedures should have a schedule for independent testing and auditing by outside parties. Every 12 to 18 months, independent testing should be required, with institutions operating in particularly high-risk regions considering a more frequent schedule.

The third-party company chosen to evaluate your institution's AML compliance programme must be certified to carry out risk-based audits. This audit can be carried out by an internal team separate from AML and Compliance in major organisations.

Internal AML Training

Even though every employee of a financial institution should be familiar with the AML process, some individuals will be directly responsible for carrying out the AML compliance programme. It might be beneficial for a business to start with a basic level of training for all employees and then add more specialised training for those who have more AML-specific duties. As a result, a global AML compliance programme should make sure that those workers receive frequent training and are aware of how to carry out their given activities, as audit and testing schedules are developed.

Global AML regulations are tough to comply with at first but once you understand the recommendations of the FATF, and create a thorough compliance program you can withstand almost any AML issues. As an AML compliance officer in the international space, you can succeed by keeping up-to-date in your industry through following the FATF and networking with peers in your industry.

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