Driving AML/CFT Success Through Board Engagement
Driving AML/CFT Success Through Board Engagement
Board Engagement plays an important role in the effective implementation of AML/CFT measures. The Senior management bears the responsibility for the AML/CFT program. Senior management helps implement a strong AML compliance culture. AML/CFT Success Through Board Engagement can be attained by clearly defining the organisation’s risk tolerance to ML/TF.
The board should be able to get regular updates on ML/TF risks and ongoing compliance activities. For this, there should be a reporting mechanism to keep the senior management informed about the compliance activities. Moreover, there should be an independent auditor to audit and evaluate the AML/CFT framework. Let us discuss in detail how the board’s engagement leads to AML/CFT success:
Approve The Risk Appetite Statement
Risk Appetite is the assessed amount of risk that a regulated entity is willing to take to achieve its goals and objectives. Taking risks is important for every business, but it is important to maintain a balance between risk-taking and risk control. This balancing is what is called risk management. For effective risk management, it is important to define the organisation’s tolerance for ML/TF risk. Defining the risk will help in making an informed decision regarding AML control measures. Risk should be defined after taking into consideration all the relevant data and factors.
Apart from defining the organisation’s tolerance for ML/TF risk, it is also important to ensure that the risk appetite aligns with the strategic goals and regulatory expectations. It helps manage risk while fulfilling business objectives.
Ensure Regular and Comprehensive Reporting
It is important that the board and senior management be aware of ML/TF risk and compliance activities. Being aware of the risk makes them aware of the vulnerabilities, which ultimately helps them in making strategies for combating the risk.
Moreover, regular updates about compliance activities help ensure that regulatory requirements are being fulfilled and that there is no risk of non-compliance. Non-compliance attracts penalties; hence, being aware of compliance activities helps reduce instances of non-compliance. Moreover, the reporting structure helps in better implementation of the AML framework.
Promoting regular reporting helps provide data-driven insights about ML/TF risk and compliance activities. Data-driven insights help identify risks, which ultimately helps allocate resources. An entity with limited resources can allocate its resources to high-risk customers rather than employing them for low-risk customers. It will even help in mitigating risk.
Moreover, data-driven insights also provide information about an entity’s compliance status. It ultimately helps in decision-making by providing data about compliance activities and risk assessment.
Oversee Independent Testing
The board must invest time in overseeing the independent testing function. An entity may appoint an external auditor or internal auditor to test the efficiency of various AML/CFT controls and the overall AML/CFT compliance framework.
The board’s involvement in scoping the coverage of the audit goes a long way in ensuring that the audit is performed objectively and in line with the legal requirements.
The board plays a significant role in ensuring that the auditor’s recommendations are implemented, and thereby, its role is pivotal in ensuring the effectiveness of the AML/CFT compliance function.
AML/CFT Success Through Board Engagement: An Overview
An informed board helps ensure that an entity fulfils the requirement of compliance. The board engagement helps in the effective implementation of the AML/CFT programme. Defining the risk appetite and ensuring that it aligns with the entity’s goals and objectives helps in making an informed decision.
The board can analyse the risk appetite and make a decision based on this. The board should be well aware of the compliance activities. Moreover, independent audits make the board aware of critical compliance lapses and the overall effectiveness of the compliance function in taking remedial measures.
Related Posts
Confused with how to mitigate ML, FT, and PF risks within your Regulated Entity?