The crackdown on money laundering continues
According to HM Treasury, serious and organised crime is costing the UK a staggering £24 billion a year. So it is understandable that the government is keen to reduce it.
Money-laundering regulations aim to reduce this figure by making it harder for criminals to use the financial system to launder their ill-gotten gains. Secondly, it enables the authorities to recover any proceeds of crime and take the financial incentive out of crime.
The private and public sectors need to work together; otherwise, it simply will not work. Even though this is a goal to be applauded, it still means that regulated businesses have to comply with laws and regulations that continue to evolve at a pace that requires constant vigilance and flexibility.
The pressure to know everything about customers is becoming greater and greater, with the inevitable outcome that data sets that require monitoring are becoming so large that firms are forced to rethink and re-engineer the way they mitigate and manage financial crime risk all the time.
Top tips to protect your firm from money laundering
1. Make sure your AML programme reflects your business
Too many firms rely on external consultants to help put together an almost off-the-shelf AML policy and procedural framework that doesn’t reflect a firm’s day to day business activities.
2. Make sure the flow makes sense
Too often, there is misalignment within a financial crime risk management framework. The risk assessment should drive the policy, the policy drives the procedures, the procedures need to reflect actual business as usual, and the subsequent controls should monitor that the entire process is aligned and working.
3. Have a clear technology plan
With the data sets that require scrutiny becoming larger and larger, it is almost impossible to have an effective financial crime risk mitigation strategy without technology components, whether within client identification, client and transaction monitoring or managing the outputs from all these processes in one clear view. The regulators are clear that they expect a clear technology plan. Even if you choose not to use technology for certain activities, you need to be able to articulate why you believe a manual process is better.
4. Understand your tools
When using third party PEP and sanctions list, make sure you understand where the data come from and how they are maintained. When using analytics to monitor behaviour, trends and transactions, make sure you can explain the underlying rationale for the algorithms deployed.
5. Be sure to conduct risk-based due diligence
This includes all customers, associates, consultants and third parties. The higher the risk, the higher the level of due diligence is required. Regulations are emerging that require firms to provide more and more detail about what they do in this respect and why they believe that what they do is appropriate. Over time there will be increasing clarity about what constitutes standard and enhanced due diligence, so firms need to review their current practices against new emerging regulations.
6. Make sure your training is focused
Everyone in a firm should be able to explain how their firm and its products and services are most at risk from financial crime. In the same vein, everyone should be clear on how to respond to unusual activity to determine whether this unusual activity gives rise to concern or possibly suspicion.
7. Regular reviews
Regulations require regular internal control reviews and reassessments. These should be hardcoded into your financial crime compliance programme with a frequency that reflects the risks your business is exposed to because of the types of clients it deals with, the products and services it sells and the jurisdictions it operates within. They should be essential, non-moveable processes in your AML compliance program.
8. Ensure the financial crime team is adequately resourced
The risk assessment and associated risk mitigants will drive the decision about required resources. In the absence of sufficient resources, a firm cannot revisit the risk assessment. A financial crime team needs adequately competent staff and an efficient toolkit to manage financial crime risk. Not having that is a big red flag to any regulator.
There is a lot of detail behind each of these statements. But if you feel confident that everything is appropriately covered and documented within your firm, you are on track to have an effective financial crime risk strategy.
EU money-laundering directives
There was a long wait after 4MLD. But now, every year, the EU continues to pile on the pressure on member states to fine-tune their laws and regulations through a series of anti-money laundering (AML) directives. At the start of 2020, we saw 5AMLD followed swiftly at the end of the year by the 6th Anti Money Laundering Directive. Although, the basic building blocks remain the same.
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