A complete guide to global AML Regulations
A complete guide to global AML Regulations
AML compliance requires financial organisations, DNFBP, and other regulated entities to comply with the AML rules and regulations – both local and international. They have to follow the legislations and the recommendations provided by the global organisations dedicated to preventing money laundering and financial terrorism. The global AML compliance rules and regulations are vast and require organisations to keep pace with the evolving amendments and improved recommendations. Let’s discuss the AML regulations made by global organizations-the recommendations which need to be followed to be AML compliant and deter, detect and catch the criminals involved in money laundering and other financial crimes.
Guide to Global AML Regulations
The Financial Action Task Force (FATF)
The FATF comprises 36 member states, and the primary function of this intergovernmental organisation is to prevent money laundering and the funding of financial terrorism. It sets global standards for AML compliance and ensures that the AML rules are followed diligently, leaving no scope for non-compliance. The updated AML and CTT guidelines are issued regularly. The global standards issued by the FATF help financial institutions detect and deter money laundering activities. The member countries and the financial institutions should follow the below-mentioned measures-
- Follow the KYC- Know Your Customer process cautiously.
- Follow the Customer Due Diligence Process.
- Follow the record-keeping process for accurate risk assessment.
- Ensure continuous monitoring of financial activities and suspicious transactions and filing Suspicious Transaction Reports to the concerned authority.
- Take appropriate actions for anti-money laundering non-compliance, such as enforcing effective sanctions against legal and obliged entities.
The European Union
EU 5AMLD and 6AMLD
The European Union’s Anti-Money Laundering Directives framework ensures effective enforcement of the AML/ CFT rules and regulations. The directives are published periodically, which shed light on the current scenario of money laundering, terrorism financing, and risk assessment of the financial markets.
5AMLD– The Fifth Anti-money laundering directive (5AMLD) came into effect on 10 January 2020. Financial Institutions need to comply with the 5AMLD rules, and this compliance includes
Cryptocurrency regulation. It defines the term cryptocurrency in legal terms and explains the reporting obligations and rules for the currency. The directive has also introduced new legal obligations for PEPs, transactions of high-value goods, prepaid cards, beneficial ownership, and customers from high-risk third countries.
6AMLD– The Sixth Anti-money laundering directive came into effect in June 2021. It defines money laundering—the broad scope of money laundering and the criminal liability and stringent punishments for the guilty.
The Financial Conduct Authority (FCA)
The FCA in the UK is an independent body that regulates the financial services industry. The objective of FCA is consumer protection, market stability, and providing a leveled competition field for all players. To achieve these goals, the FCA introduces new rules and monitors the compliance process to ensure that organisations avoid violation of the compliance rules. AML/ CFT compliance falls under the ambit of the FCA.
Regulation: The FCA keeps an eye on the financial products in the UK and sets the minimum legal standard, non-compliance of which leads to bans on the products.
Supervision: The FCA ensures that the financial institutions operate in a safe market environment and comply with the AML regulations. It ensures that they correctly follow the compliance process and adhere to the customer identification and risk assessment procedures. Further, they also monitor that they continuously monitor the customers’ transactions and identify any suspicious activity. The financial institutions need to report the suspicious transactions to the concerned authority.
Authorization: The FCA imposes the registration rules for financial institutions before authorising them to commence business in the UK
The Bank Secrecy Act
The Bank Secrecy Act (BSA) is run by the Financial Crimes Enforcement Network (FinCEN). The main goal is to deal with money laundering, but gradually, its scope has been widened, and therefore it also focuses on other financial crimes. Financial institutions should comply with the below-mentioned rules:
Compliance Program: US financial institutions must create and implement an internal AML program that meets their risk assessment requirements. AML programs should contain all the mandatory elements such as written policies and procedures, employee training, independent audits, and the appointment of an MLRO.
Reporting: Financial Institutions have to fulfill different AML reporting requirements such as creating and filing Suspicious Activity Reports (SAR) and Currency Transaction Reports (CTR).
Record Keeping: Financial institutions should maintain all the suspicious activities’ details that mention the customer identities and the amount of money transacted. Non-compliance with the BSA regulations attracts $250,000 and imprisonments while prosecuted under the US criminal codes.
The Australian Transaction Reports and Analysis Centre deals with money laundering. It is a dedicated government agency in Australia that prevents money laundering, financial fraud, criminal and terrorist financing. It works as per the rules stated in the Anti-Money Laundering and Counter-Terrorism Financing Act (2006). It identifies and works towards preventing financial fraud and misuse of the Australian financial system. The efforts of AUSTRAC include identification and monitoring of money laundering and funding of terrorist activities. Another aspect that the agency looks into is reporting the AML/ CTF obligations. It focuses on reporting suspicious activities. Suspicious Reporting is an essential part of the AML compliance process as it triggers the series of measures or actions taken against the criminals.
This governmental authority works closely with different governmental agencies to implement the AML/ CFT policy effectively. They ensure that the AML laws are adequately enforced and cooperate with revenue agencies and security services. Entities are subjected to heavy fines & penalties and imprisonment for non-compliance with AML rules.
Hong Kong Monetary Authority (HKMA): The Hong Kong Monetary Authority ensures that Hong Kong’s financial system remains stable and works smoothly. The HKMA works as per the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, so it plays an essential role in preventing money laundering and financing terrorism. It ensures that the financial institutions adhere to the AML rules and regulations. It is also entrusted with creating an AML/ CFT program and implementing it. The HKMA AML program involves the following elements-
Risk Assessment: Financial institutions should create AML programs to combat the challenges of money laundering and financial terrorism.
Procedures and Controls: There are numerous procedures and controls in the AML/CTF programs, such as independent audit, employee training, and compliance management.
Compliance Officers: It is mandatory to appoint a compliance officer responsible for properly executing the AML/ CFT program and reporting and filing suspicious transactions.
Monetary Authority of Singapore (MAS):The (MAS) is the central bank of Singapore responsible for regulating the financial sector. It includes various functions such as implementing the monetary policy, managing assets, and strengthening the financial position of Singapore at the international level. The AML policy is mentioned in the Notices on the Prevention of Money Laundering and Countering the Financing of Terrorism. The policy includes the following:
Due Diligence: Due Diligence and Enhanced Due Diligence is necessary for identifying suspicious transactions and fraudulent accounts. So, financial institutions should perform these compliance procedures and help fight the menace of money laundering.
KYC– KYC is an essential process of customer identification and assessment process. The financial institutions have to maintain the records of the KYC process carried out.
Reporting and Monitoring: It is mandatory for financial institutions to continuously monitor the customer accounts create and file the suspicious transaction activity to the MAS.
It is noteworthy that non-compliance to the AML rules and regulations attracts a huge penalty of up to $ 1 million. So it’s necessary that the AML compliance process is duly followed.
The Federal Decree-law No. (20) of 2018 on Anti-Money Laundering and Combating the Financing of Terrorism and Financing of Illegal Organisations requires Financial Institutions and Designated Non-Financial Businesses and Professions to establish a comprehensive AML/CFT Program including AML Policy for KYC, Screening, Risk Profiling, Governance, STR Filing, and more.
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About the Author
CISA, FCA, CS, DISA (ICAI), FAFP (ICAI)
Pathik is a multi-disciplinary professional with more than 22 years of experience in compliance, risk management, accounting, system audits, IT consultancy, and digital marketing. He has extensive knowledge of Anti-Money Laundering rules and regulations, and he helps companies comply with legal requirements. Pathik also helps companies generate value from their IT investments.