AML Compliance Checklist for Banking and Financial Institutions

aml compliance checklist

In most global jurisdictions, banks and other financial institutions are required to implement an AML compliance program to meet regulatory obligations related to detecting and preventing money laundering and terrorist financing activities.

However, achieving anti-money laundering compliance in banks is a complex process for many financial institutions. Banks must collect appropriate information from customers and continually screen transactions to report suspicious activities to financial authorities as needed. Banks should be wary of new criminal tactics and future law amendments that could change their compliance obligations and affect their internal AML programs.

To manage anti-money laundering, taking into account the burden of its management, and to ensure the effectiveness of AML countermeasures, it is advisable to implement an AML compliance checklist when notifying banks. The checklist will be help build a bank’s AML infrastructure and manage their day-to-day responses to money laundering risks. Therefore, an effective AML compliance checklist should include key features such as:

Risk-based AML Countermeasures

Under the provisions of the FATF (Financial Action Task Force), banks should take an AML / CFT risk-based approach. It implements an AML response proportional to the risk of crime facing banks and applies stronger customer due diligence, sanctions, and transaction monitoring measures to high-risk customers to reduce risk. This means that customers need to use simplified measures. The risk-based approach is at the core of AML law in most global jurisdictions. The AML compliance checklist needs to be flexible enough to accommodate the extended response that accompanies it.

Identification

Identification is an important component of risk-based AML. Banks know who they are dealing with to deploy proper AML support and the risks they present. The AML compliance checklist should prioritize the identification of improved live-action (EDD) measures for high-risk customers through customer live-action (CDD) measures. The CDD needs to set the following exactly:

  • A customer’s personal information, such as name, address, and date of birth.
  • The actual owner of the company whose owner is not a customer or client.
  • The nature of the business in which the customer participates.

PEP Status

Banks need to determine if their clients are politically exposed persons (PEPs), and therefore have a high risk of getting involved in money laundering. Clients who are PEP or will be PEP need to be subject to enhanced measures in the customer due diligence checklist. Ideally, the bank’s AML compliance checklist should allow the PEP screening feature to see if any state changes are detected throughout the business relationship with them onboard.

Sanctions Review

Banks must avoid doing business with individuals, companies, or countries on the international sanctions list. With this in mind, the bank’s AML compliance checklist includes a sanctions review process that reviews all relevant lists. It contains lists issued by national authorities and international organizations. For example, US banks need to screen their customers from the US Office of Foreign Assets Control (OFAC) sanctions list and the UN Security Council sanctions list.

Transaction Monitoring

The AML compliance checklist focuses on providing banks with ongoing compliance. This means monitoring customer transactions for suspicious activity concerning risk profiles. Transaction monitoring needs to be set up to detect:

  • Transactions exceeding regulatory thresholds
  • Unusual transactions, e.g., unexpected large transactions or large transactions
  • Unusual transaction patterns
  • Transactions with high-risk countries
  • Transactions with PEPs approved or in the case of individuals
  • Clients involved in harmful media articles

Suspicious Activity Report

Bank AML checks should include the process of submitting Suspicious Activity Reports (SARs) to financial institutions in the event of detection of possible money laundering. The SAR submission process should be straightforward and include input from senior management.

AML Training

The FATF recommendation requires banking staff to undergo AML training to recognize suspicious activity that could indicate money laundering or terrorist financing. Therefore, the bank’s AML compliance checklist should include an ongoing AML training schedule to adapt to new laws and new criminal tactics.

Compliance Officer

The Bank AML compliance checklist should include the requirement to appoint a compliance officer who will oversee the AML compliance program  and serve as a point of contact for financial authorities, as recommended by the FATF. Compliance officers need senior staff with the authority and expertise to effectively perform their roles.

Archive

Archiving is essential at all stages of the AML process. Banks need to assess risk based on customer records, and authorities’ final investigations need to provide information stored in the same customer records. Keeping this in mind, the Bank AML compliance checklist should address the need for effective documentation and record-keeping from onboard monitoring, screening, and SAR submissions.

WRITTEN BY

Himanshu Mishra

Technology Head
Himanshu is an entrepreneur with 17+ years of overall experience in strategic and advisory roles in Senior Management, IT program management, Quality Assurance, and ERP implementations. He has invested in companies focused on Digital Technologies and Healthcare industries. He has previously worked in domains like: Technology, Finance, Marketing… Read more

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