All You Need To Know About Anti-Money Laundering (AML) Policy

Financial institutions’ laws and regulations have been updated to include anti-money laundering policies. All financial businesses must adopt and implement an AML policy to protect the market from criminal and fraudulent activities.

Understanding AML Policy

Anti-money laundering policy is a collection of measures that reduce the occurrence of illegal activities. AML regulations ensure that illicit funds are not disguised as legitimate income. As the financial industry quickly adopted new technologies to simplify complex chains of transactions, AML legislation was created to make it difficult for anyone to hide their profits from a crime.  

AML Policy Regulators

Money laundering regulations and requirements apply to businesses of all sizes. Financial companies must comply with global and local regulators to ensure anti-money laundering practices are in place.

• Financial Action Task Force (FATF)

FATF is the global regulator for AML policy. It is an intergovernmental organisation that works to prevent terrorist financing and money laundering. With 36 countries as its members, FAFF sets global standards for AML compliance.

• EU 5AMLD and 6 AMLD

All the businesses in the European Union have to comply with the Fifth Anti-Money Laundering Directive (5AMLD) and the Sixth Anti-Money Laundering Directive (6AMLD).

• Financial Conduct Authority (FCA)

In the UK, FCA is responsible for ensuring market integrity while protecting consumers and promoting competition in the financial markets. FCA regulates, supervises, and authorizes financial instruments to operate safely according to the anti-money laundering policy regulations.

• Bank Secrecy Act (BSA)  

The most important regulation in the US is the Bank Secrecy Act (BSA). Banks and other financial institutions operating in the US must fulfill all the obligations outlined in the regulatory requirements.

• Hong Kong Monetary Authority (HKMA)

HKMA fights against terrorism financing and money laundering in Hong Kong, one of Asia’s most active business centres.

• Monetary Authority of Singapore (MAS)

MAS regulates the financial sector in Singapore by supervising financial institutions with monetary policies. Huge penalties are imposed on institutions that don’t comply with MAS policies.

• Australian Transaction Report and Analysis Center (AUSTRAC)

AUSTRAC is the most prominent financial intelligence agency in Australia. Persons and financial institutions are penalized if AML regulations are not met.

• Financial Crimes Investigation Board (FCIB)

FCIB is responsible for preventing money laundering crimes in Turkey. It checks all transactions for suspicious activities. FCIB also has an auditing authority.

A Step-by-step Guide to Implementing the Perfect AML Policy

Every financial organization must understand that AML compliance is a fundamental requirement. All crimes have ulterior financial motives, and AML policy aims to hinder the proceedings of illegitimate financial transactions. With better AML policies and compliance, financial frauds such as tax evasion, corruption, theft, etc., can be kept in check.

Before implementing AML policy for an organization, decision-makers must understand the global and local requirements. Without any exceptions, all the regulatory requirements must be met. Following is a step-by-step guide to implementing a robust AML policy:

• Step 1: Define policy purpose

Ensuring a clear understanding of anti-money laundering compliance requirements is crucial for any business. Before implementing AML steps, a company must understand the definition of money laundering and terrorist financing, the necessity to create a robust AML policy and the importance of monitoring and reviewing to ensure AML compliance.

• Step 2: Hire a dedicated AML compliance officer

Every detail of business AML policy and compliance requirements must be written and followed religiously. The first step to creating a comprehensive anti-money laundering policy is to appoint a dedicated AML compliance officer who can be held responsible for all operations of AML compliance.

• Step 3: Prepare reporting policy for Financial Intelligence Unit (FIU)

The primary purpose of an AML policy is to monitor suspicious activities and take immediate action. Businesses must have a clear policy to report suspicions to the FIU when suspected criminal activity occurs. Sometimes, authorities may request documents and information related to illegal activities. Companies must also have a clear policy on cooperating with the authorities with such demands.

• Step 4: Sharing AML data with other financial institutions

AML policy regulations are mandatory for all financial organisations. To prevent criminal activities, accumulated AML data may have to be shared with other financial entities. As a part of AML implementation, businesses must have clearly defined processes and practices to share such data with other financial entities.

• Step 5: Checking against sanction lists

Before entering a relationship with anyone, businesses must ensure that the other party is not on any blocked or sanction list. US Specially Designated Nationals List (SDL) is one such list. Depending on the jurisdiction, businesses may have to check against multiple lists to approve another entity for a financial relationship. Financial companies must have a standardised procedure to check clients against these lists.

Read more: What is sanctions screening?

• Step 6: Verification of clients’ identities

Aggressive identity checks are an essential part of the anti-money laundering policy. Every business must complete KYC and thoroughly verify customers’ identities before allowing the customer to open an account or carry out any financial transaction. The detailed procedure must be drafted when the following events are triggered in the financial system:

• Gathering personal data.
• Submission of false data or no data.
• Verification process.
• Waiting time for client verification.
• System fails to verify client data.
• Recording all AML processes.
• Notifying clients about identity verification and associated results.

Read more: What are AML checks?

• Step 7: Customer due diligence (CDD)

Financial institutions are responsible for customer due diligence, and AML policy requires detailed procedures on the risk rating system.

• Step 8: Reporting suspicious activity

Under Suspicious Activity Report (SAR), AML policy makes it mandatory to report suspicious activities accurately. Detailed information must be present in the report and completed within a deadline based on the triggering action. Businesses can use sample templates for this purpose.

The best method to implement an AML policy is to use automated solutions. These solutions automate tedious processes such as verification, validation, checking, and reporting. Financial businesses must adopt modern technologies to ensure AML compliance.

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FAQs

How to set up an AML policy?

Automation solutions from service providers make it easy for organizations to implement a strict anti-money laundering policy.

Is AML compliance required for a small business?

All businesses, irrespective of their size, must adhere to the AML regulations and requirements when financial transactions are involved.

How can a company ensure continuous AML compliance?

Continuous monitoring and assessment are the best way to ensure AML compliance. A compliance officer must perform audits and checks to ensure that the AML policy is up-to-date.