Around the World in AML Regulation

By Gabe Hopkins, Ripjar Chief Product Officer

Among evolving regulations, business leaders need a solid understanding of their anti-money laundering compliance responsibilities wherever they are operating. Global anti-money laundering (AML) and counter-financing of terrorism (CFT) compliance is a complex but crucially important challenge that can vary significantly by jurisdiction, risk environment, and emerging fintech innovations. To ensure compliance across borders and regulatory areas, bosses should ensure they are using all the materials and knowledge available to them.

Global regulations

The Financial Action Task Force (FATF), comprised of 39 member states, was created to prevent financing for money laundering and terrorism as well as improving compliance standards worldwide. To meet those goals, the FATF has set out AML/CFT recommendations for its member-states to implement via domestic legislation. These recommendations are frequently reviewed to guarantee a true reflection of risk, regulation and fintech innovation.

Although the domestic implementation of these regulations may differ by state, the FATF has some fundamental recommendations:

• Money laundering must be treated as a criminal offence and a financial intelligence unit should be developed to manage reporting in each country.
• Businesses should implement a risk-based approach to money laundering, performing risk assessments on customers and following those up with proportionate compliance responses.
• To build accurate customer risk profiles, businesses should implement Know Your Customer (KYC) measures, including customer due diligence (CDD)
• Customers should be screened at regular intervals in order to detect suspicious activity and capture changes in risk profiles. Screening should be done against risk indicators, such as politically exposed person (PEP) lists, sanctions lists, and adverse media stories.
• Financial authorities should use this data to assist international counterparts in cross-border criminal investigations.

Similarities and differences

Financial regulation can be impacted by various factors which could be regional, international or country-specific. The EU has issued Anti-Money Laundering Directives on a periodic basis to standardise Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT). Following these guidelines, member states are expected to implement these regulations into domestic legislation by a specified deadline.

Since the UK has left the EU, it now has greater freedom in its domestic regulation but still aligns with much of the regulation set out by the EU. It is possible that changing governments may implement new policies perceived to make the most of the UK’s split from the EU – producing policies which are more nationally-focused. Those moves would likely be primarily politically focussed. In reality, the EU regulations are aligned globally and deviation from EU and therefore global standards would be likely detrimental for the UK’s business outlook.

The most inconsistent region in terms of regulation is the Middle East, where AML/CFT regulations often differ significantly by state. Because of this, many of these countries present an elevated risk of money laundering and are designated on the FATF’s Jurisdictions under Increased Monitoring list – also known as the FATF ‘greylist’. The greylist currently includes Jordan, Pakistan, Syria, Yemen, and the United Arab Emirates.

Some countries have specific domestic regulations which have been implemented as a result of particular conditions or events. A key example of this is the Patriot Act in the US which was introduced in 2001 in response to the September 11 terror attacks. The Patriot Act modified the Banking Security Act (BSA) by adding new CDD and screening requirements and increasing noncompliance penalties.

Navigating regulations

For international organisations, navigating ever-changing money laundering regulations represents a significant challenge. As compliance budgets are often under pressure, teams should make the most of the technology available to them, automating processes to avoid wasting time and resources.

Forward-planning is key when implementing any compliance strategy. If a company plans to expand their operations into another region, compliance should be built into every part of the business model, anticipating future problems and being as prepared as possible. This is because it is far better to resolve issues ahead of time, rather than dealing with regulatory consequences which could have an impact across the business.

About Author:

Gabe Hopkins, Ripjar’s Innovative Chief Product Officer has over 25 years of experience in the financial services industry, during which he has developed solutions to be used by banks and other bodies. In his role as Chief Product Officer, Gabe manages complex and sensitive stakeholder relations and cross-functional matrixed teams. His unparalleled knowledge of the industry, particularly around payments, fraud and financial crime, gives him a unique insight around various issues. As the space is increasingly complex and teams are under strain, technology is essential in reducing pressure.