What are AML/CFT Regulations for businesses?
You may need clarification when you look worldwide and see the number of AML/CFT laws & regulations. Which policies should you opt for, and which sides away? This is the question most businesses like you often ask.
Local and international regulatory policies share the same agenda: to combat money laundering, terrorist financing, and related crimes.
However, there are three top AML/CFT standards set by Top regulatory bodies that your business must implement into its operations to stay compliant and avoid penalties or fines.
This blog will discuss the compliance programs every business requires to implement these rules into its system.
Understanding AML/CFT Regulations
The AML/CFT rules and regulations are the laws, policies, and procedures set by international regulatory bodies for financial institutions to ensure they are making every effort to combat financial crimes, including money laundering and terrorist financing.
The ultimate purpose of these regulations is to protect the integrity of the global financial system and prevent the platform from being used for illicit purposes.
They are the critical and secure components in the global effort to combat financial crimes.
The standards set by regulatory bodies are the efforts in fighting against the crimes and the criminals.
TOP 3 AML/CFT Regulations
- FATF
In the late 20th century, Financial crimes like money laundering and terrorist financing were rising at a fast pace, and these crimes were posing significant threats to the global financial system.
The G7 summit, in its 14th annual session, proposed a body that will mainly focus on combating these financial crimes worldwide.
So, the FATF has been crucial in molding the organizations’ and countries’ laws and strategies that are aimed at fighting against financial crimes policies, like monitoring, detecting and reporting money laundering and terror financing crimes.
If any business or organization does not follow these recommended regulations, the body can impose fines and penalties on the non-comply businesses.
Key Components of Financial Action Task Force
- Risk-Based Approach: For any organization, particularly financial institutions, applying a risk-based approach is the first and foremost strategy in the fight against money laundering. FATF ensures that countries are doing their best in identifying and detecting the risks within their organizations.
- Customer Due Diligence (CDD): Another important factor is verifying business customers while onboarding them. Therefore, the body recommends that every organization comprehensively apply a customer due diligence strategy to avoid future threats of crime.
- Suspicious Transaction Reporting (STR): Financial crimes are often committed through unusual activities or transactions that follow unique patterns. Companies must monitor such transactions and report suspicious activity if they see it.
- Transparency and Beneficial Ownership: We all know that a complex ownership structure is often used for shell companies, and that is why the opaque ownership structure is considered a strategy for committing money laundering crimes. Therefore, the body recommends the organizations and even countries provide accurate, beneficial information to people.
- US PATRIOT ACT
The 9/11 incident changed the whole course of world order. After The deadly incident in 2001, the world had officially heard the proper definition of terrorism and about its financing.
It was established in response to the 11 September attack to significantly expand the scope of AML/CFT regulations in the United States.
Please note that this act is the amended version of the Bank Secrecy Act, and the amendment was made in the context of a terror attack in 2001 to further prevent the chances of terror financing and related crimes.
Key components of the US Patriot Act
Enhanced Due Diligence: this act primarily focuses on non-US residents, which is why Businesses must conduct enhanced due diligence on them.
Information Sharing: The body believes proper information sharing among businesses and regulatory bodies can prevent terrorist financing. Therefore, the body emphasizes sharing sensitive information that could help in combating money laundering and terrorist financing crimes.
Customer Identification Program (CIP): When onboarding new clients, financial institutions must implement a CIP in their user identification process that helps in verifying the identity of those individuals opening their accounts.
Expanded Definition of Financial Institutions: The USA PATRIOT Act also expanded the definition of businesses that need to be included in the compliance program, such as casinos, credit card companies, and certain types of money service businesses.
EU Anti-Money Laundering Directives
The EU parliament has introduced a series of AML directives to combat financial crime in any form. The first AML directive was introduced in 1991 to verify customer identity and suspicious transactions. To this day, the parliament has implemented 6 AMLD in every member state.
These directives set the framework for AML/CFT compliance in the EU and ensure a coordinated approach to prevent financial crimes. Here’s an overview of the key directives:
In the latest of its series, AMLD6, the body introduces a broader definition of Laundering crimes and clarifies that non-compliant businesses will face stricter penalties.
Do businesses need to comply with all AML/CFT Policies?
Yeah, complying with the rules and regulations is compulsory for businesses. Compliance is essential to prevent financial crimes, protect the financial system’s integrity, and avoid severe legal and monetary penalties.
Are you feeling overwhelmed by various AML/CFT Monitoring requirements?
You need not worry anymore. AML Watcher offers a single solution for all your problems. Its AML compliance software meets the requirements of all AML/CFT bodies’ compliance regulations.
