AML/CFT Regulatory Framework
Anti-Money Laundering and Counter Terrorist Financing requirements globally.
View original at Financial Action Task Force
AML/CFT Regulatory Framework
Anti-Money Laundering (AML) and Counter-Terrorist Financing (CFT) regulations require financial institutions to prevent, detect, and report financial crime.
FATF Standards
The 40 Recommendations
The Financial Action Task Force (FATF) sets international standards covering:
- AML/CFT policies and coordination (1-2)
- Money laundering and confiscation (3-4)
- Terrorist financing and proliferation (5-8)
- Preventive measures (9-23)
- Transparency of legal persons (24-25)
- Powers of competent authorities (26-35)
- International cooperation (36-40)
Risk-Based Approach
Enterprise-Wide Risk Assessment
- Identify ML/TF risks
- Customer types
- Products and services
- Delivery channels
- Geographic risks
Customer Risk Assessment
- Low risk: Simplified due diligence
- Standard risk: Standard due diligence
- High risk: Enhanced due diligence
Customer Due Diligence
Standard CDD
- Identity verification
- Beneficial ownership identification
- Purpose and nature of relationship
- Ongoing monitoring
Enhanced Due Diligence (EDD)
Required for:
- PEPs (Politically Exposed Persons)
- High-risk countries
- Complex/unusual transactions
- Correspondent banking
- Private banking
Simplified Due Diligence
- Low-risk customers
- Still requires some verification
- Must be justifiable
Transaction Monitoring
Key Elements
- Automated screening systems
- Unusual activity detection
- Threshold monitoring
- Behavioural analysis
Red Flags
- Inconsistent with customer profile
- Structured transactions
- Rapid movement of funds
- High-risk jurisdiction involvement
Reporting Requirements
Suspicious Activity Reports (SARs)
- Reasonable grounds to suspect
- No tipping off
- Timely filing
- Quality over quantity
Currency Transaction Reports
- Threshold-based (varies by jurisdiction)
- Cash transactions above limit
- Aggregation rules
Sanctions Screening
Requirements
- Real-time screening
- Watchlist coverage
- Name matching algorithms
- False positive management
Key Lists
- UN Security Council
- OFAC (US)
- EU Consolidated List
- UK Sanctions List
Record Keeping
- CDD records: 5+ years after relationship ends
- Transaction records: 5+ years
- SAR records: As required
- Training records: Document all training
Governance
Three Lines Model
- Business units - ownership
- Compliance - oversight
- Internal audit - assurance
MLRO/CAMLO
- Senior management appointment
- Board reporting
- Regulatory liaison