In order to combat the crime of money laundering, regulators across the globe introduce laws, regulations, and procedures in a timely manner. These anti money laundering regulations focus on preventing criminals from disguising illegally obtained funds as their legitimate income. Although these laws cover a limited range of transactions and criminal behaviour, their implications are far-reaching. To ensure adherence to local and international anti-money laundering regulations, financial institutions, including banks, asset managers, credit unions and fintech companies, are required to form an anti-money laundering compliance programme or AML compliance programme.
The AML department in banks and other financial institutions are responsible for setting up an AML policy which forms the backbone of an effective AML compliance programme. The AML policy thoroughly lays out the institution’s AML programme requirements and procedures.
What is an AML compliance programme?
The AML compliance programme is everything an organisation does in relation to compliance: be it built-in internal operations, user-processing policies, accounts monitoring and detection, or reporting of money laundering incidents. The main agenda of an AML compliance programme is to expose and react accordingly to inherent and residual money laundering, terrorist financing, and fraud-related risks.
An AML compliance programme involves a set of measures and regulations an organisation must follow when it comes to preventing financial crimes. Each financial institution has its own unique landscape and challenges when it comes to the prevention of money laundering. Geographical peculiarities, international, national and state regulations, and the nature of clients are some of the factors that an institution should take into consideration while drawing up an AML compliance programme.
Therefore, an AML compliance programme is not a one-size-fits-all solution. It should be tailor-made to suit the needs of the institution and the industry it operates in. This system should encompass a process for sophisticated reporting and due diligence while verifying customers. The AML compliance programme is usually designed by the compliance officer, who is also responsible for regularly updating and testing the programme.
The focus of an effective AML compliance programme
The main focus points of an effective AML compliance programme are given below.
- Detecting suspicious activity and risky transactions
- Risk assessment of clients based on the industry and nature of business
- Internal guidelines, protocol, and responsibilities to ensure compliance
- Training employees regularly to stay up to date with money laundering techniques
- Conducting independent audits to review and update the current programme to optimise the outcome
All institutions are supposed to have a strong understanding of what an AML compliance programme needs to achieve, and how to create a program that works for them. To develop a coherent program, businesses have to follow set out requirements.
Major components of an AML compliance programme
A compliance programme helps an organisation to analyse and draw up its potential risks and legal obligations. This could mean the risks an institute is exposed to, anti-money laundering laws in their jurisdiction, and fines for non-compliance, possible suspicious activities that will indicate money laundering. To level up the development of an AML compliance process, businesses should outline the following components of an AML compliance programme.
1. Risk assessment
Comprehensive AML risk assessment is a crucial first step in building an effective AML compliance programme. Each institution faces different sets of AML risks, depending on the products and services it offers, the nature of customers, and the geographic location. Each of these factors should be considered when building an AML compliance programme, and it should suit the specific needs of the institution.
2. Compliance officer
An Anti-Money Laundering Programme should appoint a designated principal compliance officer who is responsible for overseeing the general implementation of AML policies within the institution. The compliance officer should have sufficient experience and authority within the institution to ensure the performance of their duties effectively. Which include communicating with authorities and auditors, briefing senior management, and making AML policy recommendations based on audits and reports.
3. Tailored internal policies, procedures, and controls
The Anti-Money Laundering Compliance Programme should also focus on the internal controls and systems the institution uses to report or detect financial crime. It should involve a regular review of these controls to ensure their effectiveness. The institution’s employees should be made to be aware of their own roles and responsibilities within the system, which could mean how to conduct due diligence on business interests, or how to navigate policies and procedures which ensure compliance on an ongoing basis.
4. Ongoing, relevant training for employees
Every employee within a financial institution should have a working knowledge of AML procedures along with specific employees bearing greater responsibility for implementing the compliance programme. It is plausible for an institution to implement a base level training for all employees, and targeted training for those with more AML-specific responsibilities.
A variety of organisations offer training programmes for employees to better their knowledge and competencies. Procedures are not implemented unless employees are trained, so it should be kept current and relevant, while the employees manage according to the procedures.
5. Independent Audits
Testing and auditing a compliance programme cannot be performed by someone with direct responsibility to the compliance effectively, so it needs to be done by a third-party organisation. The third-party organisation must be qualified to conduct a risk-based audit, in case of low or medium risk, a knowledgeable independent party may conduct the audit.
The frequency of independent audits should be based on the risk tolerance of the institution. The testers should have all the necessary knowledge and experience with AML compliance to understand and analyse the programme. The purpose of the review is to confirm whether the programme is operating as designed and if the internal controls are effective.
The role of Regtech in building an effective AML compliance programme
The four pillars of AML Compliance Programmes are a necessary means to the required foundation of an effective compliance programme. It is imperative to incorporate these measures for institutions to renovate their anti-money laundering (AML) and build it steadier. The in-built internal operations, user-processing policies, account monitoring and detection, reporting of money laundering incidents aim to expose and correctly react to inherent and residual money laundering, terrorist financing, and fraud-related risks.
In order to comply with AML regulations, financial institutions resort to many software solutions that analyse transactions based on specified rules and come up with suggestions on suspicious behaviour. These solutions are part of the internal AML controls. However, traditional rule-based solutions produce a large number of false positive alerts that impact staff productivity. Today, modern technologies like AI and machine learning are being used in compliance programmes. Compared to legacy solutions, AI-based solutions can significantly improve both process efficiency and compliance effectiveness. There are various Regtech solutions that can ensure AML compliance in a sustainable manner.
Tookitaki and AML compliance
Tookitaki developed an end-to-end AML compliance platform called the Anti-Money Laundering Suite (AMLS). It offers multiple solutions catering to the core AML activities such as transaction monitoring, name screening, transaction screening and customer risk scoring. Powered by advanced machine learning, AMLS addresses the market needs and provides an effective and scalable AML compliance solution.
To know more about our AML solution and its unique features, please contact us.
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