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What is an AML checklist and what should be on it?

By Andrew Doyle, CEO of AML software, NorthRow

There’s no escaping the fact that incidents of financial crime are on the rise. According to data from the Global Economic Crime Survey, 64 percent of businesses have experienced fraud, corruption or other incidents of financial crime within the last 24 months, while ONS stats show there were 3.7 million incidents of fraud in England and Wales alone in the year ending December 2022.

So it’s no surprise that financial institutions and other regulated firms are under increasing pressure from regulators (and the ever-evolving anti-money laundering legislation they must adhere to) in the battle against dirty money.

The challenge is that while these AML regulations are absolutely necessary when it comes to reducing money laundering and the financing of terrorism, they also often increase complexity for organisations that need to achieve and maintain compliance without impeding their operations.

That’s why compliance teams form such a critical function at financial institutions – they must undertake regular anti-money laundering (AML) checks to identify illicit activities in order to safeguard businesses from incidents of financial crime and the effects of it.

What is an AML check?

An AML check is a type of identity verification process used by financial institutions and other regulated businesses to establish whether their customers (both individuals and businesses) are at risk of engaging in illicit financial activities such as terrorist financing and other criminal activities. These checks include verifying that customers are who they say they are and providing regulated firms with an understanding of the risk of doing business with them.

Regulators are imposing crippling fines for failing to comply with these AML checks and some individuals have even faced jail time, not to mention the significant reputational damage that comes with non-compliance so regular and effective AML checks are absolutely essential for any and all regulated businesses.

How to conduct an AML check?

An effective AML compliance checklist requires a mixture of tools and processes to protect an organisation from high-risk customers and transactions. These components include internal processes and procedures, such as policies, training and risk management, as well as tools and technology, including sanctions list screening, automated client monitoring and regulatory reporting.

  1. Develop a robust AML function

An AML checklist is only as effective as the person in charge of conducting it and so everything starts with having a dedicated compliance officer responsible for all AML efforts. This person should be responsible for implementing all internal controls and procedures to detect and prevent money laundering activities and conduct periodic AML risk assessments across the business.

  1. Conduct customer due diligence (CDD) and Know Your Customer (KYC) procedures

Always conduct thorough CDD and KYC checks before establishing any business relationship. That means verifying the identity of customers using reliable and independent sources and monitoring and updating customer information regularly, as well as implementing enhanced due diligence measures for any high-risk customers or significant transactions.

KYC and CDD are typically the most important steps in the AML checklist. If incorrect customer information goes undetected at this stage, it can undermine the effectiveness of subsequent controls, putting the business at significant risk.

  1. Constantly monitor for and report suspicious activity

Customer information can change over time, potentially altering their risk levels. To prevent the risk-based approach from losing its effectiveness, customer information should be regularly updated and its accuracy verified. By implementing ongoing customer monitoring and controls, businesses can proactively identify any changes in customer risk profiles and act accordingly.

Robust systems for monitoring and detecting suspicious activity should also be in place, as well as clear guidelines for identifying and reporting it. And be sure to always maintain proper documentation of suspicious activity reports (SARs) and submit them to the relevant authorities.

  1. Conduct staff training

If employees don’t understand how AML policies work or receive regular training on the compliance requirements specific to their jobs, AML checks become ineffective.

A comprehensive AML employee training program will increase their understanding of what they need to do such that their company achieves and maintains compliance. Employees should receive training during onboarding and in an ongoing manner — typically once per year, or any time where the AML process changes, legislation is updated or the organisation’s risk profile changes.

And always remember to foster a culture of compliance, encouraging staff to report any concerns or suspicions on an ongoing basis.

  1. Stay up to date with regulatory requirements

The regulation around the movement of money is changing all the time as criminals become more adept at doing it so don’t forget to stay up to date with the latest guidance issued by the Financial Conduct Authority (FCA) and other relevant industry authorities.

Comply with customer screening requirements, including politically exposed persons (PEPs) and sanctions lists and retain records for at least five years after the end of a business relationship or a transaction has completed.

  1. Conduct periodic independent audits

Enlist an independent auditor to assess the effectiveness of your AML check process on a periodic basis and then review the audit findings and implement necessary improvements.

Winning the fight against financial crime

Neglecting AML responsibilities can result in severe consequences for all regulated businesses, including hefty fines (and even jail time), as well as legal costs and severe reputational damage.

By following this robust checklist, financial institutions and other regulated businesses can protect themselves from these risks and demonstrate their commitment to AML compliance and ultimately, to the reduction of financial crime

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