Regulatory compliance consists of many rules and processes that organizations must follow. Anti-Money Laundering (AML) compliance guidelines aim to help prevent money laundering and terrorist financing while stopping other forms of fraud and illegal activities.
Whether a company must follow AML rules depends on the industry it operates in. However, if the business has financial transactions, it will be mandatory for them to follow AML compliance guidelines.
It doesn’t matter if you’re just starting out or looking to improve your current AML compliance program, having a comprehensive checklist and guidelines in place is vital.
Key notes to remember:
- There are international (for example, Financial Action Task Force’s (FATF) rules, national (for instance, Bank Secrecy and Patriot Acts in the US) and country-specific (such as the Bank Secrecy and Patriot Acts in the US) regulations.
- Depending on the location, the most common industries that are subject to AML compliance are banks, insurance firms, casinos and gaming establishments, lawyers, accountants, cryptocurrency exchanges, insurance companies, forex brokers, tax advisors, and others.
What Is an AML Compliance Program?
AML compliance defines a company’s actions toward meeting AML requirements. An effective AML rule checklist typically includes multiple compliance norms, such as employee training, account monitoring, reporting, and other internal controls.
The goal: AML compliance programs identify, react to, and eliminate fraud risks related to money laundering and terrorist financing.
The importance: Effective compliance program enables the business to find out about potential money laundering risks, learn in-depth about the non-compliance laws, and prevent suspicious activities within the organization.
What Factors Impact AML Compliance?
Before building a compliance program, every business must assess its potential risks and legal obligations, which include:
- Analyzing money laundering risks the company’s exposed to
- Researching local and global regulations to avoid non-compliance penalties
- Considering any suspicious activity within the company
That’s why several factors can affect a company’s AML program, especially considering the constant changes in regulations. Also, let’s not forget technology’s impact and the new compliance rules that were set due to the widespread use of mobile banking and digital currencies.
To develop a successful AML compliance program, organizations must follow some vital steps. Let’s explore them in more detail.
Step One: Select a Compliance Officer
This is the go-to person in all things related to AML compliance. This person will play an important role in the company by evaluating various processes and keeping the business in line with regulatory requirements.
Key skills a Compliance Officer should have:
- They must possess knowledge in the legal sector, internal audits, and AML compliance.
- They must be experienced in managing regulatory procedures and analysis tools.
- They should be able to solve problems and communicate effectively.
- They must have an appropriate license and certifications.
Step Two: Educate and Train Employees
As AML guidelines change over time, compliance expectations evolve. That’s why employees should have a proper understanding of AML processes. To achieve this goal, companies must conduct ongoing monitoring and design special training programs. This ensures that all team members have the right skill set to help the company stick to its AML duties.
Key tips for helping conduct employee training:
- Choose the right training topic. For example, create an overview of penalties for non-compliance or talk about general AML rules and how to stop illicit activities.
- Develop a written training program. There’s no “all size fits all”. It can be anything from daily staff meetings about the latest AML news to weekly legislation guideline updates.
- Monitor and measure the results. No matter what training method you choose, it’s vital to calculate the success of the training by giving out evaluation tests.
Step Three: Develop Internal Compliance Controls
Next, it’s essential to maintain regulatory compliance by implementing internal controls and policies. Obligated entities must perform Customer Due Diligence (CDD) and monitor suspicious activity while ensuring that applicable data is reported to appropriate agencies like FinCEN. Practices can vary depending on the individual company’s size and the associated risks.
Use this short checklist to navigate through AML policies easier:
- Evaluate AML processes. Add periodic procedure evaluations into your standard AML practice. Automated transaction monitoring, together with AML customer screening, will reduce the time for compliance officers who are responsible for detecting potentially suspicious activity during this stage.
Integrate identity verification. Using AI-powered verification solutions will ensure quick and accurate data validation while guaranteeing that the customer’s data is legit before they can complete any transactions.
Step Four: Ensure Independent Testing
While developing internal controls or training your employees is essential, AML compliance requirements also include regular independent testing.
To understand and assess the company’s program yearly, a qualified third-party company must take care of this testing. Instead of taking someone directly responsible for regulatory compliance in the company, independent audits check if all AML controls are in place and working correctly.
Key facts about third-party audits:
- Independent auditors test and audit AML programs regularly to ensure compliance.
- The goal of the audits is to discover potential weaknesses in the AML compliance program.
- High-risk sectors should undergo frequent audits, while low-risk institutions must conduct third-party testing once a year.
Step Five: Perform In-Depth Risk Assessment
Financial Crimes Enforcement Network (FinCEN) presented the final Customer Due Diligence (CDD) rule in May 2018. After it became immediately effective, it was considered one of the top essential components of AML compliance.
The CDD rule recommends companies evaluate the risks of money laundering and terrorist financing by:
- Identifying customers,
- Verifying their identities,
- Continuously monitoring transactions,
- Detecting and reporting suspicious activity.
If a customer submits a fake document, engages in unusually large transactions, or tries to open a bank account with insufficient customer information, organizations need to take the necessary steps to report these red flags.
For instance, if a customer is trying to create a new account from a high-risk country or a blacklisted IP
address, it’s best to conduct additional checks before you approve their account and provide access to sensitive data.
So, what makes this rule important? The CDD regulation poses the need for a risk-based approach, obliging businesses to conduct a comprehensive risk assessment to identify AML threats in specific jurisdictions.
How to Stay AML Compliant?
After you set up a successful AML compliance program, the question of how to maintain compliance at your organization becomes the next priority. That means sticking to the compliance checklist that you’ve established, including training employees, conducting audits, reporting suspicious activity, and so on.
As regulations change, companies are responsible for keeping their compliance program up-to-date. The risks of falling out of AML compliance can leave businesses with severe consequences. Fines range from $25,000 to $100,000 for failing to report a single suspicious transaction.
Automated AML Software Can Help
AML software helps stay compliant with AML regulations easier by enabling organizations to identify, analyze and report suspicious activity in real time. It’s an entirely automated tool designed to benefit businesses that want to stick to ever-evolving AML policies.
iDenfy can help you gain this competitive advantage by digitizing AML processes, including identity verification and AML screening or ongoing monitoring. With the ability to choose the level of friction, you can customize your customer onboarding flow by automatically verifying and additionally screening risky users to comply with CDD rules. Simplify compliance without compromising on security or your conversions. Try iDenfy’s multi-functional ID verification and AML compliance software for free today.