Implementing an effective AML/CFT Compliance Program

  Implementing an effective AML/CFT Compliance Program

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Fundamentally, an AML/CFT program should be risk-based. Certain aspects of a financial institution’s business will pose greater money laundering risks than others and will require additional controls to mitigate those risks, while others will present a minimal risk and will not need the same level of attention.

Developing your AML/CFT Program

Depending on the size of the organization, the anti-money laundering function may be managed as a dedicated/stand-alone department, integrated into other corporate departments such as the legal department or may be performed by people who have other compliance duties.

The AML/CFT program should establish minimum standards for the enterprise that are reasonably designed to comply with all applicable laws and regulations. It may be supplemented by the policies and procedures of various lines of business or legal entities that address specific areas, such as private banking, trade finance, cash handling, institutional banking, wealth management or investigations.

Compliance programs should also include corporate governance and overall management of money laundering and terrorist financing risks.

The Financial Action Task Force (FATF) urges risk-based controls. Per FATF, there are circumstances where the risk of money laundering or terrorist financing is higher, and enhanced customer due diligence (CDD) measures have to be taken. A risk-based approach requires financial institutions to have systems and controls that are commensurate with the specific risks of money laundering and terrorist financing facing them.

An AML/CFT Program should be

  • flexible because money laundering and terrorist financing risks vary across jurisdictions, customers, products and delivery channels and over time;
  • effective as companies are better equipped than legislators to effectively assess and mitigate the particular money laundering and terrorist financing risks they face; and
  • proportionate because a risk-based approach promotes a common sense and intelligent approach to fighting money laundering and terrorist financing as opposed to a check-the-box approach. It also allows firms to minimize the adverse impact of anti-money laundering procedures on their low-risk customers.

Commonly referred to as the four pillars, the basic elements that must be addressed in an AML/ CFT program are

  • a system of internal policies, procedures and controls (first line of defence);
  • a designated compliance function with a compliance officer (second line of defence);
  • an ongoing employee training program; and
  • an independent audit function to test the overall effectiveness of the AML program (third line of defence).

A System of internal policies, procedures and controls

The establishment and continual development of a financial institution’s policies, procedures and controls are foundational to a successful AML/CFT program. Together, these three parts define and support the entire AML/CFT program, and at the same time, act as a blueprint that outlines how an institution is fulfilling its regulatory requirements. All three parts should be designed to mitigate the identified AML/CFT risks and should take into account the applicable AML/CFT laws and regulations that the financial institution must comply with. They should clearly indicate the risk appetite of the business; in other words, what ri