The Evolution of AML Compliance Regulations in Malaysia

Money laundering is a significant issue globally, and Malaysia is no exception. The country has been working to strengthen its anti-money laundering (AML) regulations.  It has experienced a significant shift in the regulatory landscape, introducing new AML compliance regulations to tackle financial crimes such as money laundering, terrorist financing and bribery. In recent years, AML compliance has become increasingly important for financial institutions operating in Malaysia. 

In this blog, we will take a closer look at the evolution of AML compliance regulations in Malaysia, and the role of technology in ensuring compliance with these regulations. We will also discuss how Tookitaki’s AML solutions can help financial institutions to mitigate financial crimes and stay compliant with AML regulations.

Historical Overview of AML Compliance Regulations in Malaysia

Malaysia has been involved in various initiatives to combat money laundering since the early 2000s. In 2001, Malaysia became a member of the Financial Action Task Force (FATF) and has since implemented the 40 Recommendations set by the FATF. The 40 Recommendations provide a comprehensive framework for worldwide anti-money laundering and counter-terrorist financing efforts.

The Early Years

In 2001, the Malaysian government enacted the Anti-Money Laundering Act (AMLA) to combat the increasing threat of money laundering. The AMLA established the Anti-Money Laundering and Anti-Terrorism Financing (AML/ATF) unit within the Central Bank of Malaysia. The unit was responsible for overseeing AML compliance in the financial sector.

The AMLA was amended in 2003 to include provisions for combating terrorism financing. The amendment required financial institutions to conduct customer due diligence and report suspicious transactions to the authorities. However, the AMLA did not cover all financial institutions, and there were concerns about the effectiveness of the regulations.

Strengthening AML Regulations

In 2010, the Malaysian government enacted the AMLA (Amendment) Act, which strengthened AML regulations in the country. The amendment expanded the definition of money laundering and required all financial institutions to comply with AML regulations.

In 2014, the Financial Action Task Force (FATF) conducted a mutual evaluation of Malaysia's AML regime. The evaluation found that Malaysia had significantly strengthened its AML regulations but recommended further improvements. The FATF recommended that Malaysia enhance its customer due diligence procedures, increase the number of prosecutions for money laundering, and improve its cooperation with other countries in combating money laundering.

In 2014, the Malaysian government introduced the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act (AMLA) to provide a legal framework for combating money laundering, terrorism financing and other financial crimes. In 2017, the AMLA was amended to expand the definition of money laundering. The AMLA 2017 strengthened AML regulations in several ways, and it introduced new offences, increased penalties for non-compliance, and expanded the scope of reporting entities.

More About AMLA 2017

The AMLA 2017 introduced several new measures to combat money laundering, including:

• Customer due diligence: Financial institutions must conduct enhanced customer due diligence for high-risk customers, including politically exposed persons (PEPs).
• Beneficial ownership: Financial institutions must identify and verify their customers' beneficial owners.
• Suspicious transaction reporting: Financial institutions are required to report suspicious transactions to the authorities within three working days.
• Record-keeping: Financial institutions must maintain customer transaction records for at least five years.

The AMLA 2017 also established the National Coordinating Committee on Anti-Money Laundering and Counter Financing of Terrorism (NCC), which is responsible for coordinating AML efforts across government agencies.

The Latest AML/CFT Compliance Obligations

The Malaysian government continued to strengthen its AML regulations to combat money laundering and other financial crimes. In 2020,  Bank Negara Malaysia, the central bank and the primary AML regulator in the country, introduced two new policy documents: AML/CFT and Targeted Financial Sanctions for Financial Institutions and AML/CFT and Targeted Financial Sanctions for Designated Non-Financial Businesses and Professions & Non-Bank Financial Institutions. 

All companies regulated by Bank Negara Malaysia must comply with the new requirements. The AML/CFT policy document for financial institutions applies to various businesses, including banks (investment and Islamic banks), insurance companies, and money service businesses. The second AML/CFT policy document applies to non-financial businesses and non-bank financial institutions, such as casinos, precious metal dealers, and pawnbrokers. 

The newest AML/CFT policy document has significantly changed Malaysia's financial institutions' compliance requirements. 

• Unified AML/CTF Compliance: The latest policy document has combined separate policies into a unified AML/CTF compliance framework for all types of financial businesses, including banks, insurance companies, and money service businesses.
• Updated Customer Due Diligence (CDD): The new AML/CFT policy document provides a unified list of instances for applying CDD, such as new business relationships and ongoing CDD for existing customers. CDD is also necessary for specific categories of transactions, including wholesale currency transactions, wire transfers, and occasional cash transactions.
• Simplified Due Diligence (SDD): For the first time, companies can apply simplified checks when the risks of encountering ML/TF are low. However, the board's approval is necessary before implementing SDD.
• New Limits for Money Transfers: Bank Negara Malaysia has set limits for remittance transactions, with RM30,000 per day for locals and RM5,000 per month for foreign workers.

The current AML compliance regulations in Malaysia are aimed at increasing the effectiveness of the country’s AML regime. The regulations are designed to provide a comprehensive and robust framework for financial institutions to prevent, detect and report financial crimes.

Strengths and Weaknesses of the Current AML Compliance Regulations in Malaysia

While the current AML compliance regulations in Malaysia have provided a robust framework for combating financial crimes, there are still some areas of weakness. Some of the strengths and weaknesses of the current AML compliance regulations in Malaysia include:

Strengths:

• The regulations provide a comprehensive framework for financial institutions to prevent, detect and report financial crimes
• The regulators in Malaysia are proactive in ensuring compliance with AML regulations
• The regulations are designed to keep pace with the evolving financial crime landscape

Weaknesses:

• There is a lack of awareness among financial institutions about the importance of AML compliance regulations.
• Compliance costs for smaller financial institutions can be high
• Manual compliance processes can lead to errors and inconsistencies in reporting

AML Compliance Challenges in Malaysia

Malaysia is one of the fastest-growing economies in Southeast Asia and its financial system is a critical component of its growth. However, it is also a target for money launderers and other financial criminals. The evolving financial crime landscape and regulatory landscape have made AML compliance a complex issue for financial institutions in Malaysia. Here are some of the AML compliance challenges faced by financial institutions in Malaysia:

• Evolving regulatory landscape: The regulatory landscape for AML compliance in Malaysia is constantly evolving, and financial institutions are required to stay up to date with the changes. This means that compliance processes need to be agile and adaptable to meet new regulations as they are introduced.
• Sophisticated financial crimes: Money launderers and other financial criminals are constantly finding new ways to evade detection, and this has made it increasingly difficult for financial institutions to identify and prevent financial crimes. This requires financial institutions to be proactive in identifying and mitigating risks.
• Inefficient compliance processes and higher cost of compliance: The traditional methods used by financial institutions for AML compliance are often manual and time-consuming. This can lead to inefficiencies, higher costs, and the risk of human error.

The Role of Technology in AML Compliance

Technology has been a game-changer in the AML compliance space, allowing financial institutions to detect and prevent financial crimes more effectively and efficiently. Here are some of the advantages of using technology for AML compliance:

• Improved efficiency and accuracy: Technology can automate many of the manual processes involved in AML compliance, reducing the risk of human error and improving the efficiency and accuracy of compliance processes.
• Enhanced risk management: Technology can help financial institutions to identify and manage risks more effectively, allowing them to be more proactive in identifying and mitigating risks.
• Cost savings: Technology can reduce the cost of AML compliance by automating many of the manual processes involved, reducing the need for human resources.
• Scalability: Technology can be scaled up or down as needed, allowing financial institutions to adapt to changes in their business and regulatory environments.

Tookitaki's AML Solutions in Malaysia

Tookitaki is a global leader in financial crime prevention, dedicated to building a safer and more secure world through innovative technology, strategic collaboration, and a distinctive community-based approach. Tookitaki has been on a mission to transform the battle against financial crime by dismantling siloed AML approaches and uniting the community through its groundbreaking Anti-Money Laundering Suite (AMLS) and Anti-Financial Crime (AFC) Ecosystem.

The AFC Ecosystem is a community-based platform that facilitates sharing of information and best practices in the battle against financial crime. Powering this ecosystem is the Typology Repository, a living database of money laundering techniques and schemes. This repository is enriched by the collective experiences and knowledge of financial institutions, regulatory bodies, and risk consultants worldwide, encompassing a broad range of typologies from traditional methods to emerging trends.

The AMLS is an end-to-end operating system that modernises compliance processes for banks and fintechs. It collaborates with the AFC Ecosystem through federated machine learning. This integration allows the AMLS to extract new typologies from the AFC Ecosystem, executing them at the clients' end to ensure their AML programs remain cutting-edge.

The AMLS includes modules: Transaction Monitoring, Smart Screening, Dynamic Risk Scoring, and Case Manager. These modules work together to provide a comprehensive compliance solution that covers all aspects of AML, including detection, investigation, and reporting. Tookitaki's AML solutions are designed to help financial institutions in Malaysia overcome the challenges of AML compliance and achieve more effective and efficient compliance processes.

Adapting to Evolving AML Regulations in Malaysia with Technology

Malaysia’s regulatory landscape for AML compliance has evolved significantly over the years, but financial institutions continue to face challenges in combating financial crimes. Adopting technology in AML compliance has brought significant improvements in efficiency, effectiveness, and cost savings. Tookitaki’s AML solutions offer a comprehensive and innovative approach to AML compliance, utilizing AI and machine learning to identify and mitigate risks more efficiently.

With Malaysia’s regulators continuing to adapt to the changing AML landscape, financial institutions must stay up-to-date and implement the latest technology to stay compliant. Tookitaki's AML solutions offer a scalable and adaptable approach to AML compliance, ensuring financial institutions can stay ahead of evolving regulatory requirements and protect themselves against financial crimes.