AML Compliance Program is basically several procedures and regulations that should be followed by a financial institution in order to prevent and expose activities similar to money laundering and terrorist financing. The process of AMLs is ongoing as the Bank Secrecy Act (BSA) in the United States has been updated by different legislations that were introduced subsequently. This also includes the USA Patriot Act. As far as the EU is concerned, they have introduced their Fourth AML Directive in the year 2017 followed by the Fifth AML Directive recently in 2020. There are many money laundering red flags that should be considered seriously and more awareness needs to be spread about this issue.
Table of Contents
- Key Takeaways
- What Should An AML Program Do?
- Building An AML Program
- Internal Controls
- Independent Audits
- AML Training
- Compliance Officer
- An AML has many regulations and procedures to be followed by a financial institution to avoid activities like money laundering and terrorist financing from happening.
- Risk assessment is one of the most crucial steps involved in creating a program that is effective and free of risks.
- AML training is something that should be offered within every financial institution so that employees can then bear the responsibility of implementing the compliance program.
What Should An AML Program Do?
There are many money laundering red flags that should be kept an eye on. Typically, the role of an anti-money laundering compliance program is to make sure that any financial institution that has installed this program in their setup is able to expose any suspicious activity going on that might be related to fraud, money laundering, terrorist financing, tax evasion, and many others. The purpose is to detect such activities and report them to the designated authorities so that strict action can be taken. The focus of an AML compliance program should not only be on implementing such measures but also on minimizing the risks that customers and other clients are exposed to through that financial institution.
Building An AML Program
The responsibility of developing an AML compliance program belongs to the senior management of that respective financial institution. This is because the sort of processes and regulations to be followed can only be implemented by the unique mindset of the senior management so that they can meet all the necessary requirements easily. Although there is a number of factors that might affect the size and shape of your compliance program, the requirement is still to build it around the book of rules.
Talking about the pillars of an AML compliance program, let’s not forget about risk assessment. It is one of the first and most important steps that should be taken care of while building your AML compliance program. If you want to stay clear of red flag AML, then you must keep in mind the AML risks that you may encounter while offering your products and services to your customers and other clients. Make sure that the AML risk management strategy you’re using secures your financial institution from all sorts of risks. It depends on individual financial institutions how they take care of risk management to keep their program safe.
Another requirement for an AML compliance program is that it must focus on the internal systems and controls that are being used by an institution in order to detect financial crime and report it. These controls shall be displayed regularly so that the effectiveness of the compliance program can be measured according to the required standards. Here, the employees of an institution should have a clear awareness of the responsibilities and roles needed to be played within the system to make sure that the internal controls are running smoothly and there are no money laundering red flags to be worried about.
If you want to make your AML compliance program effective then you must create a reliable schedule that involves independent audit testing by third-party organizations. To run things smoothly, you must make sure that these tests be taken place at least every 12-18 months.
All the employees of a financial institution may need to have basic knowledge of the AML compliance program, but the responsibility of implementing this compliance program effectively lies on the shoulders of some specific employees who should be given elaborate AML training. In this way, the AML compliance program can be run without any errors or mishaps.
The duties of a compliance officer include implementing the policies of AML compliance program in their financial institution, they should have valid experience and authority when it comes to their institution to make sure that they are capable of performing their duties effectively. Their duties also include communication with the auditors and authorities, guiding senior management, and a lot more.
From the above-mentioned details, we can conclude that an AML compliance program is not a task that can be handled by beginners. It is based on the joint work and efforts of a financial institution to make sure that they are keeping all activities such as money laundering, terrorist financial institutions, and frauds at bay.