AML Processes for Financial Institutions. AML processes are a must for any financial institution to avoid hefty compliance fines. In fact, AML violations cost banks around $10.4 billion in enforcement fees in 2019.
Whether you’re a bank or neobank, the key to AML compliance is to keep track of your customers’ transactions and take action when there is any suspicious activity. Using AI-based AML solutions is a great way to do this.
Customer Due Diligence
Customer due diligence, also known as know your customer (KYC), is a vital part of the anti-money laundering (AML) process. It requires financial institutions to identify their customers, verify their identity and determine a customer’s risk profile. It is also required by law to protect organizations from financial crimes, such as money laundering and terrorism financing.
The AML process requires firms to conduct extensive investigations on potential clients and partners before engaging in business with them. These procedures help organizations understand how much of a risk a client presents and how to mitigate that risk.
Companies that don’t follow this process may face fines or other penalties. This is especially true if a firm engages in business with an individual or group that is considered to be high-risk.
Aside from checking a customer’s identity, the AML process also includes verification of beneficial ownership. This involves requesting original and certified copies of legal documents that confirm the customers’ business structure and ultimate beneficial owners.
These checks can be conducted on both individuals and businesses, and they vary by country. Some countries require enhanced customer due diligence, whereas others have simplified processes.
For example, a UK-based company might request documents such as the passport, driving licence and bank statements of a new client. This type of information is used to confirm a customer’s identity and residential address, as well as their date of birth.
The AML process also includes ongoing monitoring of a client’s activities and transactions, ensuring that these are in line with the data previously obtained. If a change occurs in the customer’s identity, the company must report this to the Financial Intelligence Unit (FIU) through a Suspicious Activity Report (SAR).
To ensure that your business is compliant with AML regulations and customer due diligence requirements, it’s important to choose an AML tool that provides a complete solution. Ondato OS is a full-featured AML, KYC, and KYB compliance solution that includes the essential elements of the AML process, from onboarding to ongoing monitoring.
Customer Ongoing Monitoring
Customer ongoing monitoring is a key component of the AML process and entails checking transactions against your bank’s risk profile. This helps to ensure that the client’s activities are consistent with their business risk and that all of their activities are not aimed at evading their AML/CTF obligations.
To achieve this, many firms automate their ongoing monitoring process by periodically screening clients against dynamic global databases. This allows them to review their clients’ PEP status, sanctions and adverse media reports regularly to ensure that their customers are not evading their AML/CTF requirements.
This process also helps to establish whether the customer’s business activities and their profile are consistent with the risk assessment that was carried out at the time of onboarding. Moreover, it helps to identify any changes in the client’s business activities that could potentially expose your company to money laundering or t*rrorism financing risks.
The customer’s original risk assessment will also change with them through the ongoing monitoring process, which means that your firm needs to carry out additional due diligence on the clients’ risk profile. This is why it’s essential to have a manual that outlines how often and what you’ll do when performing ongoing monitoring on your clients.
You need to also make sure that you have escalation procedures in place if you find any suspicious transactions or changes to the client’s risk profile. This will help you to take immediate action when required and stay on top of your AML compliance obligations.
In addition to the automated screening process, many firms carry out event-driven investigative research. This includes looking at recent news reports and updates to watchlists.
If your business is dealing with high-risk markets, or you do a lot of work in countries that are known for financial crime, you need to ensure that you check on your clients’ risk profiles and their country of residence regularly. This will prevent your business from suffering a large amount of financial loss and reputation damage.
You can check thousands of national and global databases to get information on your clients’ risk exposure. You can then use this information to keep your business risk levels low and avert any consequences of increased business risks, especially in high-risk regions or sanctioned countries.
Customer Suspicious Activity Reporting (SAR)
The anti-money laundering (AML) process requires financial institutions to report suspicious activity in a timely manner. This process is designed to ensure that the bank and government agencies have all the information they need about any potential criminal activities affecting customers.
SARs are a form that is filed by financial institutions to the authorities when they have detected suspicious activity. These reports are required by the law in several countries around the world. These reports are used to prevent money laundering, fraud, and terrorism funding.
In the United States, FinCEN sets certain thresholds for suspicious activity that necessitate a report. These include abuse by insiders, situations linked to terrorism or other exceptional circumstances, and transactions that exceed a certain amount of money.
These reports can be filed by employees at financial institutions, as well as law enforcement and other public safety officials. These individuals are trained to spot red flags that might signal criminal activity.
As part of the AML process, banks need to educate their staff about SAR rules and regulations. This will help them to identify red flags quickly and file SARs efficiently.
Most SARs are submitted by employees, but a few other types of people can also submit these reports. These people include law enforcement, city or state officials, and business owners.
After the report is filed, federal authorities will investigate and respond to it as they see fit. These responses may range from an investigation into the underlying criminal behavior to a formal complaint against the financial institution.
There are some key best practices that banks should follow in order to properly handle SARs and protect their customer base. These practices will ensure that they are able to effectively monitor and report suspicious activity in a timely manner, which is crucial for ensuring that the AML process is working effectively.
The SAR process is incredibly important in the fight against terrorism, drug trafficking, money laundering, and other crimes. In fact, a SAR Review Team, coordinated by U.S. Attorney’s Offices, exists in 80 of the 94 federal judicial districts across the country to systematically review all SARs and coordinate their distribution among law enforcement. These teams consist of representatives from the United States Department of Justice, the Internal Revenue Service, and other regulatory and law enforcement agencies.
Customer Risk Assessment
Customer risk assessment is a key part of the AML process and is necessary for financial services businesses to comply with regulatory guidelines. This process ensures that a business can identify and prevent financial crimes before they become a problem.
When conducting a customer risk assessment, a business must consider a number of factors. These factors include credit scores, employment history, criminal record, and more. These factors are used to determine whether a customer is likely to engage in illegal activities or make fraudulent transactions.
In addition to these factors, businesses should also assess a customer’s transaction method. This is important because different payment methods can have unique risks that can lead to money laundering.
One of the most popular ways to assess risk is through credit reports. These reports provide a detailed history of an individual’s account information from banks, credit cards, and merchants. This allows companies to verify a person’s identity and check whether they have an outstanding debt.
Another factor that is often overlooked in assessing customer risk is the transaction method. The most common methods of payment are credit cards and electronic funds transfers. These methods have different transaction times and require a deeper understanding of the risks associated with them.
While it is still a challenge to fully assess customer risk, it is becoming more and more commonplace for businesses to perform these assessments. These assessments can be a great way to reduce costs and ensure that businesses are doing everything possible to avoid AML violations.
It is also a way to ensure that a business can be more proactive in their AML compliance process and not just react to violations as they occur. This can help to protect the economy from financial crimes and also prevent damage to the company and the reputation of the business.
In order to assess risk effectively, organizations need to implement tools that are both automated and scalable. This is especially important when assessing risk on a larger scale, such as a large eCommerce business or an online casino. In these cases, it can be difficult to have a team of dedicated people performing manual reviews.