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In today’s highly tech-driven world, where businesses have to face intense market competition amid the constant threat of cybercrime, keeping intact regulatory requirements add fuel to fire. Anti Money Laundering (AML) compliance is a mandatory obligation for financial institutions (FIs) to prevent financial crime. Some of those that top the list are money laundering, illegal trafficking of humans, luxury items or hard cash, avoiding tax authorities through bribing and carrying out embezzlement, etc.
Given all these rules and responsibilities set forth by regulators, businesses and especially those operating in the financial sector need to develop and adopt intelligent solutions that are purpose-built around AML/CFT compliance policies and procedures. AML solutions help prevent bad actors from carrying out their ill motives by stopping them in the first place through ongoing screening and proper due diligence checks.
What are some Challenges for FIs and Businesses?
Complying with state-of-the-art KYC/AML compliance is not a piece of cake for everyone, particularly when it requires high-end regulatory technology (RegTech) to combat criminals and their dirty intentions. In this regard, businesses need to take every possible countermeasure needed to safeguard their brand image and customer trust. The information-sharing mechanism a business adopts needs to be transparent (for whom it needs to be) and secure from any external breach. This is important in order to execute AML regulations.
Sharing relevant information about suspicious customer behavior with regulatory bodies is a challenge for both financial organizations and corporate entities. Reporting rules set by, for instance in the Bank Secrecy Act (BSA), define guidelines and requirements for entities to operate in the financial industry. Apart from that, performing a proper risk assessment of customers before they start using the services and products is one of the many challenges. AML compliance consists of a number of important elements that make conformity with the regulations possible. It is essential not only for the financial but also for the corporate sector.
Significance of Information Sharing for AML/KYC Compliance
In order to advance efforts against the better implementation of AML, KYC, and Countering the Financing Terrorism (CFT) standards, a number of financial regulatory watchdogs came into existence, some of which are FATF, FinCEN, FINMA, etc. The 40 recommendation published by FATF is a document with benchmark guidelines to develop a financial action plan and prevent money laundering and activities related to it.
Such recommendations and regulations aim at better information sharing across similar financial entities, so that crime could be taken down better. Listed below are some benefits of employing AML/KYC solutions that have a built-in compliance mechanism:
A comprehensive money trail can be generated by collaborating with different FIs to track suspicious behavior and lead to the actual money launderer
Reporting rules can be properly followed by businesses so that the ‘profit for crime’ can be recalled back to the victim entity
Pointing out bad actors that are money mules (intermediaries) between the criminal and the financial organizations (target platform).
Through proper AML/CFT standards in place, terrorist organizations and their funding sources could be exposed allowing better security opportunities
Protecting the regulatory infrastructure and legal financial system from crime and restoring standards regularly
How can AML Compliance be Achieved?
Basically, to ensure AML compliance, organizations need to make sure they chalked out key components to address risks and devise a proper plan to implement all the necessary policies and procedures. AML solutions help prevent bad actors from carrying out their ill motives. Let’s have a look at some basics of AML compliance:
AML and CFT regulations are a must for entities operating in the financial services industry where there is a constant risk of monetary crime. These institutions are supposed to acquire all the necessary information during customer verification, account openings, and payment transactions, etc. to ensure no loopholes are left in the system.
The transactional and user information obtained by the organizations needs to be kept intact for some time so that if a financial intelligence unit (FIU) like FinCEN requires important information regarding money laundering and CFT, it is available.
AML compliance requires businesses to create their in-house crime mitigation departments which can exchange information with regulatory authorities in taking down financial crime better. Organizations need to work towards this regardless of their corporate responsibilities and see it as a national duty.
Components of AML Compliance
AML compliance consists of a number of important elements that make conformity with the regulations possible. It is essential not only for the financial but also for the corporate sector. Let’s have a look at some fundamentals that make AML compliance possible.
Know Your Customer: KYC includes everything related to customer identification, verification, and due diligence practices that are followed during user onboarding. These allow businesses to enroll legitimate customers, thereby, creating better room for mitigating money laundering and staying compliant.
AML Compliance Officer: ensures that all regulatory measures are in place within the organization, employees are well-aware of their obligations and no compliance breach occurs.
Risk Management: Before customers are verified, they are given a risk rating based on the total amount of risk they pose to the business. Through proper AML/CFT standards in place, terrorist organizations and their funding sources could be exposed allowing better security opportunities