AML Compliance Checklist for Financial Industries

Blog / AML Compliance Checklist for Financial Industries

Financial institutions face an ever-evolving landscape of anti-money laundering (AML) regulations and threats from financial crimes. This year brought significant changes to the AML industry and highlighted the importance of staying up-to-date with the latest compliance requirements. To protect against reputational damage and financial losses, it's essential for organizations to implement effective AML procedures and also use AML compliance software to ensure compliance. This article provides a comprehensive AML compliance checklist specifically tailored to the financial industry and its major sectors, such as banking, crypto, payment services, and fintechs, outlining the necessary steps and requirements for full compliance with regulations. Stay ahead of the curve and take proactive measures to guard against financial crime with this comprehensive guide for AML compliance program.

However, before sectoral details, there are some steps that every actor in the FIs must take. Here is a brief AML checklist for companies;

  • Risk Assessment: Financial institutions need to be vigilant against money laundering and terrorist financing, which have become more sophisticated with the advancement of technology. To combat this, companies must implement AML measures such as Know Your Customer (KYC), Customer Due Diligence (CDD), and a Risk-Based Approach. The latter involves evaluating each customer's level of risk through Key Risk Indicators (KRI) and conducting customer risk assessments. By doing so, companies can identify and respond to any suspicious financial activity. Regulators expect financial institutions to adopt a risk-based approach in their AML compliance programs.
  • Having a compliance officer or a team: AML Compliance Officer is a key role in ensuring a company meets its obligations under anti-money laundering regulations. This person is responsible for managing the company's AML compliance program to avoid penalties and reputational damage. Companies must appoint an AML Compliance Officer and choose them carefully to avoid non-compliance and penalties. The officer ensures the company complies with AML regulations and takes necessary measures against financial crimes. Neglecting obligations can result in penalties for the Compliance Officer as well.
  • Training employees: The rise of new technologies has made money laundering more sophisticated, making it difficult to detect and prevent. The role of the Anti-Money Laundering officer is crucial in ensuring compliance with regulations to prevent financial crimes. However, companies face difficulties in finding experienced AML staff. It's becoming important for companies to train their existing compliance teams to improve their skills in AML compliance. Continuous employee training is essential to keep them up-to-date on changing regulations, identify and prevent money laundering, maintain an effective AML compliance program, minimize the risk of fines and penalties, and enhance the company's reputation.
  • Regular internal auditing: The guidelines published by authorities reinforce the expectation for businesses to consider establishing an independent AML auditing function, even if not explicitly required by law. The purpose of AML auditing is to improve a company's compliance with AML regulations through regular risk assessments, transaction monitoring, and employee training. An independent auditing function provides an objective evaluation and helps identify and mitigate potential risks. The 2017 Regulations included this requirement due to AML errors being prevalent in regulated firms, despite having well-trained AML teams. An independent auditing function ensures that any issues are noticed and addressed objectively.
  • Adopting AML software solution: The growth of Fintech has led to the growth of Regtech, with Anti-Money Laundering (AML) software being a key tool to prevent financial crimes. Black money is a complex issue, with billions of dollars being laundered each year. Regulatory agencies aim to prevent financial crimes by regulating and overseeing organizations at risk, and traditional manual methods are no longer sufficient in today's technology-driven world. AML compliance software makes organizations' AML processes faster and safer.

AML Compliance Checklist for Banks

Perhaps the first institution that comes to mind regarding financial institutions is banks. Banks transfer millions of money every day. It has to check whether these transfers are money laundering or terrorist financing. AML compliance program must be ensured to minimize risk. Banks have some obligations to do in this regard. These are;

  • Know Your Customer: Banks must know who their customers are. It is very dangerous for the bank's credibility that one of the customers finances terrorism or is being wanted on the sanction lists. Banks also need to know if their customers are  Politically Exposed Persons (PEP). Because PEPs are riskier than ordinary people. AML compliance software can help banks to conduct KYC procedures effectively.
  • Sanctions Screening: Banks have to pay attention that their customers are not among the persons and companies mentioned in their sanction lists. Each customer and money transfer needs to be controlled in this sense. While banks make millions of transactions every day, they cannot control this manually. Thanks to AML Sanction Screening software, you can do this automatically.
  • Transaction Monitoring:  Unfortunately, getting to know customers and opening an account according to sanction lists is not enough to prevent risk. Anyone not on the sanction list also has a risk of financial crime. Banks also have to control the transactions made to minimize the risk. Banks can do this by putting their clients on their rule sets and using AML Transaction Monitoring software that alerts them to rule violations.
  • Suspicious Activity Reports:  The bank AML control unit is obliged to prepare a suspicious activity report (SAR) and submit it to financial authorities in case of detecting possible money laundering. Therefore, the SAR presentation should be clear. Some AML compliance software provides support to users when filling SARs.
  • AML Training - Compliance Officer:  As per FATF recommendations, bank employees must receive training to recognize suspicious activity that could indicate money laundering or terrorist financing. A bank's AML compliance officer should follow FATF recommendations to oversee the AML compliance program and appoint a liaison officer for financial authorities.

Manual operations are insufficient, and AML software solutions are necessary for success to combat financial crimes.

AML Compliance Checklist for Crypto Firms

The rapid growth of the crypto industry has brought problems. The development of cryptocurrencies Think about the crypto market's growth and that criminals may come into this industry. Suspicious Activity Reports FATF Recommendations for virtual currencies like Bitcoin have the potential to change the financial landscape fundamentally. Virtual assets provide many conveniences. These facilities are like making payments more accessible, faster, and cheaper. However, its features, such as speed, global reach, and anonymity, risked being a financial crime tool. Therefore, the crypto sector requires companies to have AML compliance programs and use AML compliance software in these highly digitalized days.

The recommendations titled "Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Provides" were published by FATF on 21 June 2019. These recommendations briefly explained how crypto companies would comply with regulations and audit them. Virtual Asset Service Providers, like other financial institutions, should apply a risk-based approach and risk assessment in the FATF manual. FATF member countries are responsible for the implementation of these measures.

  • 5AMLD - A guide for Virtual Asset Service Providers: It has been announced that the 5th AMLD, published by the European Union in 2018, will be applied to virtual currency exchanges and custody crypto wallet providers. The European Union is fighting increasing financial crimes together with FATF. While companies that do not fulfill their obligations are punished severely, they try to prevent crime with new regulations.
  • Customer Onboarding Process Under KYC and AML Obligations: With the Customer Onboarding Process, profitable customer experiences can be created. For this reason, companies need to do this quickly, easily, and smoothly. Of course, while doing this process fast, it is aimed not at creating an environment for financial crimes. Crypto companies must comply with AML and KYC requirements as per European Union regulations and Financial Action Task Force recommendations.

Challenges faced in regulating crypto assets, with their decentralized nature and risks of AML, and potential solutions.

AML Compliance Checklist for Mobile Payment Providers

With the effect of the COVID-19 pandemic, cash was almost unusable. Throughout the year, people preferred card or mobile payment while shopping. Mobile payments became a trend with the impact of the pandemic. So, how open are mobile payment systems to financial crimes? Mobile payment is very convenient, and criminals are also aware of this. This situation creates many threats and security problems. AML compliance processes need to be carefully controlled to prevent risk.

  • KYC and CDD Procedures: Know Your Customer and Customer Due Diligence procedures are the main steps for AML compliance program. Mobile payment providers have many customers with different profiles. Therefore, it must take risks and threats during account opening. When opening an account, authentication is performed. Then, whether the customers are risky or not is determined from the lists. These lists are sanction lists. There are thousands of sanctions and PEP lists around the world. Companies cannot manually check these lists. That's why they need AML screening software.
  • Detection of Suspicious Transactions: Another control point of the adaptation process is transactions. Catching suspicious transactions means catching them in the act. These transactions carry a high risk of financial crime. Therefore, companies bear significant responsibility for detecting suspicious transactions in financial transactions. To detect suspicious transactions, customers must divide into profiles, create a rule for each profile, and create alarms to exceed these rules. Companies cannot run this system manually if they are not very small. With the AML Transaction Monitoring Software, customers' large suspicious transactions can generate alarms and stop the transaction, thus minimizing companies' risk of providing money laundering and terrorist financing.

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AML Compliance Checklist for Fintech

Financial Technology (Fintech) companies pose a severe risk of money laundering. Fintech firms have to take precautions in this regard.

  • Know Your Customer:  Know Your Customer procedures measure client risk when opening an account for financial services. It is one of the first steps of AML compliance program. KYC is a method used to reduce the risks of money laundering, terrorist financing, corruption, fraud, bribery, and other illegal financial activities. FATF recommendations and European Union Directives emphasize KYC at every opportunity.
  • Customer Due Diligence: Customer Due Diligence allows organizations to evaluate their customers' risks. CDD briefly consists of information about the customer. One of the most significant risks for Fintech firms is that their clients finance money laundering and terrorism. In Fintech firms, AML compliance softwares are used during CDD processes to ensure customers, provide regulations, and detect unusual situations.
  • Enhanced Due Diligence: Enhanced Due Diligence is the process of collecting information about the customer, such as CDD. The difference is that EDD is only made for risky customers, not for every customer. Some customers may be riskier than others at Fintech firms, and transactions can create significant problems. EDD procedures must be applied to prevent this. Adverse Media Screening allows you to search for negative news posted about a person or business. Adverse Media Screening is an essential part of anti-money laundering processes. Fintech firms can identify risks to individuals and companies with Adverse media. Millions of new news are released every day, and it becomes almost impossible for companies to manually. That's why Fintech firms can scan using software that provides Adverse Media Screening.

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