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According to the National Crime Agency (NCA), serious organised crime costs the UK tens of billions annually. So it is understandable that the government is keen to reduce it.
The government has announced a new strategy to tackle the growing threat of Serious and Organised Crime. This strategy expands on the work already underway by the government and law enforcement, including through the NCA, which received record investment in 2023/24, to eradicate complex criminal networks.
Money laundering regulations aim to make it harder for criminals to use the financial system to launder their ill-gotten gains. It also enables the authorities to recover any proceeds of crime and take the financial incentive out of crime.
The crackdown on money laundering continues
The private and public sectors need to work together; otherwise, it simply will not be effective. Even though this is a goal to be applauded, it still means that regulated businesses have to comply with laws and regulations that continue to evolve at a pace that requires constant vigilance and flexibility.
The pressure to know everything about customers is increasing. The inevitable outcome is that data sets requiring monitoring are becoming so large that firms are forced to rethink and re-engineer how they mitigate and manage financial crime risk.
Top tips to protect your firm from money laundering
These tips aim to help your firm tackle the challenge of keeping pace with ever-changing regulations and guard against money laundering.
1. Make sure your AML programme reflects your business
Too many firms rely on external consultants to help put together an almost off-the-shelf AML policy and procedural framework that doesn't reflect a firm's day-to-day business activities.
2. Ensure the AML programme flow makes sense
Too often, there is misalignment within a financial crime risk management framework. The risk assessment should drive the policy. The policy drives the procedures. The procedures need to reflect actual business as usual, and the subsequent controls should monitor that the entire process is aligned and working.
3. Have a clear technology plan
With data sets that require scrutiny becoming larger and larger, it is almost impossible to have an effective financial crime risk mitigation strategy without technology components.
Whether this is within client identification, client and transaction monitoring, or managing the outputs from all these processes in one clear view, the regulators clearly expect a clear technology plan.
Even if you choose not to use technology for certain activities, you need to articulate why you believe a manual process is better.
4. Understand your tools
When using third-party PEP and a sanctions list, make sure you understand where the data come from and how they are maintained. When using analytics to monitor behaviour, trends, and transactions, ensure you explain the underlying rationale for the deployed algorithms.
5. Be sure to conduct risk-based due diligence
Risk-based due diligence includes all customers, associates, consultants and third parties. The higher the risk, the higher the level of due diligence required.
Regulations are emerging that require firms to provide more detail about their actions in this regard and why they believe that they are appropriate.
Over time, there will be increased clarity about what constitutes standard and enhanced due diligence, so firms need to review their current practices against new emerging regulations.
6. Make sure your AML training is focused
Everyone in a firm should be able to explain how their firm and its products and services are most at risk from financial crime. In the same vein, everyone should be clear on how to respond to unusual activity to determine whether it gives rise to concern or possibly suspicion.
7. Conduct regular reviews
Regulations require regular internal control reviews and reassessments. These should be hardcoded into your financial crime compliance programme with a frequency that reflects the risks your business is exposed to.
This is due to the types of clients it deals with, the products and services it sells, and the jurisdictions it operates within. These processes should be essential, non-moveable processes in your AML compliance programme.
8. Ensure the financial crime team have adequate resources
The risk assessment and associated risk mitigants will drive the required resources decision. Without sufficient resources, a firm cannot revisit the risk assessment. A financial crime team needs adequately competent staff and an efficient toolkit to manage financial crime risk. Not having that is a big red flag to any regulator.
There is much detail behind each of these statements. But if you feel confident that everything is appropriately covered and documented within your firm, you are on track to have an effective financial crime risk strategy.
EU money-laundering directives
Every year, the EU continues to pressure member states to fine-tune their laws and regulations through a series of anti-money laundering (AML) directives. There was a long wait after 4MLD, but at the start of 2020, we saw 5AMLD, followed swiftly by the 6th AML Directive. However, the basic building blocks remain the same.
It seems that 6AMLD will be the last of the numbered directives. The EU's latest AML package was unveiled in July 2021, consisting of four legislative proposals - a directive and three regulations.
These bold recommendations, which implement the European Commission's (EC) May 2020 Action Plan, represent the most significant revamp of the EU's anti-money laundering and counter-terrorist financing legislation to date.
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