Anti-money laundering measures are reportedly getting better in order to protect financial firms and their online operations. The regulatory authorities have implemented these standards in an effort to stop the funding of terrorism and money laundering. Banks, insurance companies, and other financial institutions are having a hard time adjusting to the change as digital transformations continue to grow.
To address the current problems, regulatory bodies are revising strict regulations and making some amendments. Governments and private business owners must create effective AML compliance programs in accordance with the regulations. Additionally, where digital onboarding streamlines financial operations, criminal threats are growing at the same time.
Global AML Regulations – Leading Forces Against Money Laundering
Regulating agencies are putting strict controls in place for businesses in light of the rise in illegal activities like money laundering. Financial institutions must offer customers a secure and fraud-free experience in accordance with regulations. In order to achieve this, they must implement efficient AML solutions that offer real-time and reliable customer verification. With the help of AI-powered AML systems, financial institutions can easily perform various checks, including ongoing monitoring, risk assessment, and due diligence. Regulatory bodies around the world enforce the following AML laws:
EU Anti Money Laundering Directives
The EU has long implemented a number of standards to combat criminal threats. Similar to this, the EU recently proposed directives 5 & 6AMLD due to the current rise in financial scams based on digitization. According to Shufti Pro News, all of the EU’s member states are subject to anti money laundering directives. The directives of the EU are in line with the FATF’s requirements for AML verification. These two directives are explained below:
- 5AMLD
As an improvement to the 4AMLD, the EU implemented the 5th Anti Money Laundering Directive in 2020. According to the regulations, businesses and financial institutions must confirm customers’ identities, UBOs, and backgrounds before onboarding them. Businesses in the financial sector need to ensure that they are doing their due diligence and risk analysis properly.
Businesses should also cross-verify customers against international watchlists like sanctions, blacklists, and PEPs to determine their level of risk. Not only that, but according to the Guildies, online wallets and virtual currencies are also subject to AML screening.
- 6AMLD
The 6AMLD was introduced in December 2020 to help financial institutions put effective AML compliance mechanisms in place. It tightens the previously proposed requirements while enforcing harsher penalties for those who engage in money laundering and terrorist funding offences.
Financial Action Task Force (FATF) guidelines
The FATF is a global regulatory body that combats money laundering and started operations in 1989. There are 39 significant nations that make up its membership, including the US, the EU, the UK, China, Japan, and Germany. FATF wants to make sure that its member nations have robust AML monitoring systems in place. Following are the prerequisites for it:
- Implement Efficient Risk Assessment
According to the FATF, financial institutions and companies must identify customers before digital onboarding in accordance with the AML compliance measures. Their risk assessment is a part of this, like verifying the UBOs, cross identity checks, and authenticating the fund’s source. Financial institutions should also use AML solutions to more effectively fight money laundering and terrorism financing.
- Checking for Global Watchlists
FATF mandates financial institutions to carry out efficient AML screening of customers against global watchlists such as PEP lists and blacklists. FATF requires financial institutions to efficiently implement AML screening of clients against international watchlists, such as blacklists and PEP. According to Shufti Pro Funding, organizations can avoid corruption, money laundering, and other financial scams in this way.
- Conduct Customer Due Diligence
FATF mandates that financial institutions implement AML compliance controls to carry out efficient customer due diligence. Banks, businesses, and other financial institutions must verify clients or partners in accordance with the standards to guarantee CDD. Additionally, they ought to set up an auditing procedure for additional risk evaluation.
- Report Suspicious Behavior
Financial institutions can identify red flags of money laundering and other suspicious behaviour by implementing an effective AML verification program. Regulatory authorities mandate that the financial institution must report these suspicious activities in the form of a “suspicious transaction report.”
- Constantly Update Records
Last but not least, financial institutions must maintain accurate records in order to support the proof of client activity.
Conclusion
Every financial institution must have an AML compliance program in place in order to comply with regulatory requirements. According to the global AML security measure, it should implement ongoing monitoring, CDD, suspicious detection, and similar operations. For this reason, organizations should use AML solutions for efficient screening and financial crime mitigation. Financial institutions can eventually stop money laundering, funding terrorism, and other crimes.