Anti-money laundering (AML) policies and procedures require the regulated entity to undertake Know Your Customer, or what we all know as “KYC”, to determine a customer’s true identity by collecting information and verifying it using reliable sources.

As part of AML compliance, the regulated entity must review the existing customer’s identification details and documents and ensure that the same are valid and relevant for customer identification purposes and assessing the risk the customer poses to the business related to financial crimes, including money laundering, terrorist financing, and proliferation financing (ML/FT and PF). This process of ensuring customer details is up-to-date and relevant is known as “KYC remediation.”

KYC remediation is an extension of the KYC process and is an essential element of the Customer Due Diligence (CDD) program. It involves checking the validity of existing customers’ details and updating them, if necessary, by seeking additional information or documents. Through the KYC remediation process, the regulated entity improves and organises the customer’s data to find inconsistencies and further determines appropriate steps to prevent ML/FT risks.

Dealers in Precious Metals and Stones (DPMS) are more vulnerable to financial crimes, given the inherent nature of the precious metals and stones. Transactions in precious metals and stones are misused as a medium for criminals engaged in financial crimes like ML/FT to easily invest and transfer proceeds from illicit activities. Thus, the DPMS must be watchful of the customers, identify the ones posing a higher risk of ML/FT, and apply adequate risk mitigation measures, adopting a risk-based approach.

Transaction monitoring is one of the most critical steps in the customer due diligence process, and it allows regulated entities to keep a check on suspicious transactions and mitigate money laundering and financial crimes.

However, to ensure that transaction monitoring is robust, an effective transaction monitoring program must be developed.

The first step in developing the program is conducting an enterprise-wide risk assessment to identify the risks regulated entities face from customers, products, and services and adopt the risk-based approach.

The second step is to define the transaction monitoring red flags. These red flags and risk indicators will help correctly identify suspicious transactions during ongoing monitoring. While defining these red flags, the business must consider the evolving trends and typologies associated with the industry in which it operates.

An independent AML audit is necessary as per the UAE’s anti-money laundering laws. While the business is obliged to conduct an AML audit, there are several benefits it provides to the entity.

When you conduct an internal AML audit (which is not independent of the AML function), there is a chance that the internal AML compliance department will miss out on covering all aspects and be influenced by internal factors.  On the other hand, independent AML audits provide the business with an honest view that is free from any internal influence.

Based on the independent AML auditor’s opinion, the AML compliance department can make changes to the existing policies, procedures, and controls. This also allows the business to update the AML compliance framework with the latest regulatory requirements. For instance, if the government has introduced a change in record-keeping requirements, periodic AML audits will bring it to notice, according to which the business can make the required changes.