Compliance teams form a critical function at financial institutions and other regulated firms, tasked with undertaking AML checks to identify illicit activities and financial crime in order to safeguard businesses from financial crime and mitigate risk.
In this article, you’ll find a handy anti-money laundering compliance checklist of the key areas, summarising good practices, helping firms to meet compliance requirements and instil confidence in operations.
What are AML checks?
An AML check refers to the process of verifying the identity of individuals or entities to prevent money laundering, terrorist financing, and other financial crimes. The purpose of an AML check is to ensure that businesses comply with regulatory requirements and maintain the integrity of the financial system.
During an AML check, financial institutions, such as banks, payment processors, and other regulated entities obligated to follow AML regulations, conduct due diligence on their customers. The process typically involves collecting information and documentation to establish the identity of customers and assessing the potential risk they pose in terms of money laundering or illicit activities.
Why are AML checks important for compliance?
Conducting an AML check forms a critical foundation in the detection and prevention of money laundering, fraud and terrorist financing, notwithstanding the impact that non-compliance can have on firms.
A poor AML process can lead to catastrophic effects, ranging from fines and bringing a company into disrepute, to criminal charges and even jail time. In 2022, banks and other financial institutions were fined almost £4bn for failings in anti-money laundering compliance.
Key regulations for AML checks
Understanding and referencing the legal frameworks behind AML compliance is crucial for ensuring that your business stays ahead of regulatory demands. Regulations like the UK’s Money Laundering Regulations 2017, the US Bank Secrecy Act, and guidelines from the Financial Action Task Force (FATF) form the backbone of effective compliance programs worldwide. By integrating these regulations into your AML processes, you not only strengthen your internal controls but also create a clear, practical path for your team to follow. Staying informed about these key frameworks helps businesses navigate the complexities of compliance and avoid costly mistakes.
How to conduct an AML check
Conducting an AML check should be a thorough process. The steps shown below outline the process in detail. If you’d like to have a PDF version on hand during your next AML, download our AML checklist.
1. Develop and maintain a robust AML check programme:
- Establish a clear and comprehensive AML check policy
- Designate a dedicated compliance officer responsible for AML efforts
- Implement internal controls and procedures to detect and prevent money laundering activities
- Conduct periodic risk assessments to identify and manage AML risks
2. Customer due diligence (CDD) and Know Your Customer (KYC) procedures:
- Conduct thorough customer due diligence before establishing a business relationship
- Verify the identity of customers using reliable and independent sources
- Monitor and update customer information regularly
- Implement enhanced due diligence (EDD) measures for high-risk customers or transactions
3. Suspicious activity monitoring and reporting:
- Implement robust systems for monitoring and detecting suspicious activity
- Establish clear guidelines for identifying and reporting suspicious activities
- Train employees on recognising red flags and reporting obligations
- Maintain proper documentation of suspicious activity reports (SARs) submitted to the relevant authorities
4. Staff training and awareness:
- Provide regular AML training to employees to ensure they understand their obligations
- Keep employees informed about the latest AML developments and regulatory updates
- Foster a culture of compliance and encourage employees to report any concerns or suspicions
5. Compliance with legal and regulatory requirements:
- Stay up to date with the Money Laundering Regulations and other legislation that is relevant to your business
- Comply with customer screening requirements, including politically exposed persons (PEPs) and sanctions lists
- Establish a process to assess and manage risks associated with correspondent banking relationships
- Retain records for at least five years after the end of a business relationship or a transaction (such as a house sale) has completed
6. Conduct periodic independent audits:
- Enlist an independent auditor to assess the effectiveness of your AML check process
- Review audit findings and implement necessary improvements
7. Collaboration with regulatory authorities:
- Cooperate with regulatory bodies and provide requested information promptly
- Stay informed about the guidance issued by the Financial Conduct Authority (FCA) and other relevant authorities
Final thoughts on AML checks
Conducting effective Anti-Money Laundering (AML) checks is not just a regulatory requirement but a crucial step to safeguard against financial crime and reputational damage.
Neglecting AML responsibilities can result in severe consequences, including significant fines and legal repercussions. It’s imperative that organisations prioritise AML compliance to protect their businesses and maintain the integrity of the financial system.
By following this robust checklist, you can protect your business from these risks and demonstrate your commitment to AML compliance.
Last updated: Tuesday 9 January 2024
