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Aligning financial crime compliance with local and international enforcement priorities

On 30 June 2021, the Wolfsberg Group published a paper on demonstrating effectiveness in Anti-Money Laundering/Combating Terrorist Financing (AML/CTF) compliance programs, advocating a risk-based approach for AML/CFT program by aligning financial institutions’ compliance effort (including its control design and resource allocation) with local government or supra-national bodies’ risk priorities.

The above proposition appears to be supported by the U.S. AML/CTF regulator.  On the same day as Wolfsberg Group published its paper, FINCEN issued the first government-wide priorities (the “Priorities”) on AML/CFT setting key priorities of the federal enforcement agencies in areas including corruption, cybercrime, terrorist financing, fraud, transnational criminal organization, drug trafficking organization activity, human trafficking and smuggling, and proliferation financing.  The Priorities provides more clarity and guidance to financial institutions in deciding investments and resource allocation in their AML/CFT programs. In addition to that, the Priorities also helps to foster a closer public-private partnership in fighting financial crime.

Yet, financial institutions may notice that the scope of the Priorities may be wider than the traditional remit of a financial crime compliance function.  As a result, banks should promote better collaboration between AML professionals and other risk type professionals (e.g. fraud and cyber) – according to AlixPartners’ AML & OFAC/Sanctions compliance survey in 2020, 73% of respondents from financial institutions believe that fraud and cyber can likely or very likely be converged with AML and sanctions initiatives.  Similarly, the tools and capabilities across different risk types need to be better communicated and understood internally to ensure systems and data across the enterprise are sufficiently leveraged for risk detection and prevention.

Lastly, a closer alignment between compliance effort and the national risk priorities will allow financial institutions to focus on delivering visible and positive impact to the communities where they operate. This creates a sense of mission to business and compliance professionals and elevate the brand name and reputation of the financial institutions in the local markets.

Today, however, most FIs do not focus their AML/CTF risk assessments on government priorities. Instead, and largely in response to supervisory expectations, AML/CTF risk assessments are focused on technical compliance with requirements rather than the effectiveness of the FI’s efforts to prevent and detect financial crime.

Tags

financial services, regulation, financial crime, aml, fraud, cyber crime, fincen, wolfsberg

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