Anti-Money Laundering Guidance for Banks

Banks or the banking sector are under the obligation of Anti-Money Laundering because they are at risk of financial crime. AML regulations contain measures that companies must take to detect and prevent financial crimes, and these regulations are determined by AML regulators and are a guide for businesses. There are hundreds of local and global regulators in total, doing AML studies in the world. Although all regulators aim to prevent financial crimes, regulations vary from country to country and from region to region.


In this article, we will examine the Financial Action Task Force (FATF), which are global AML regulators in general, and the anti-money laundering regulations published by the European Union and the AML obligations of the banking sector.


What Is Anti-Money Laundering for Banks?


Anti Money Laundering represents the rules, regulations, and obligations set for the detection and prevention of money laundering and other financial crimes. It is impossible to determine the exact amount, but billions of dollars of financial crimes are committed each year. Any financial crime that cannot be detected and prevented causes crime organizations to increase their criminal activities. Therefore, financial crimes have very serious negative consequences. There are many local and global regulators to combat financial crimes effectively. These regulators publish regulations, recommendations, and obligations of organizations at risk.


Why Are Banks at Money Laundering Risk?


Banks have been the largest institutions in the field of finance since the past. Considering that even a single local bank mediates thousands of financial transactions throughout the day, when we look at the world, millions of financial transactions are realized through banks every day. Criminal gangs need financial resources to survive and grow their gangs.


Criminal organizations try to launder the money in order to use the crime earnings they get from crimes. According to the announced data, criminals carry out 97% of money laundering activities through financial institutions. Considering that banks mediate millions of financial transactions during the day, banks are at great risk against financial crimes. For this reason, banks must identify the risks by fulfilling their AML obligations and must take precautions for them.


Get to know money laundering more closely.




AML Compliance Program of Banks


Banks' AML compliance programs are composed of all measures and controls applied to ensure AML compliance of banks and to protect against regulatory penalties. The AML compliance program should work perfectly from the outset to effectively combat financial crimes and AML compliance. Failures in the AML compliance program will result in banks being punished by regulators. Therefore, banks must create an effective AML compliance program to meet the requirements of the regulations they are obliged to.


How should the efficient an AML compliance program be?


Risk-Based Approach in Banking


The most important element of effective AML / CFT programs is the risk-based approach. FATF, the European Union, and most local AML regulators agree with the implementation of a risk-based approach to AML / CFT. According to the risk-based approach, the risk level of each customer is different. In addition, countries have different risk levels. For this reason, the businesses have to determine the risks of the customer and apply control processes specific to these risks by taking a risk-based approach. Banks are obliged to perform a risk assessment with customer due diligence and know your customer procedures by applying a risk-based approach in customer account opening processes. Banks then have to control their customers' transactions with the control mechanisms they have developed in accordance with their risk levels.


Know Your Customer in Banking


Know Your Customer is the process of collecting customer information in banks' customer account opening processes. It is a critical step as it is the first control step applied in the AML program. Because an error made at this stage causes the entire AML program to be dysfunctional, if we look at FATF, 4AMLD, and 5AMLD, Know Your Customer procedures are mandatory for banks.


Know Your Customer in Banking or Know Your Customer control is the process of identifying the customer identity of banks when opening new customers. At this stage, customer information is collected, and banks check the accuracy of the collected customer information. That is, banks have to make sure that customers and customer information match. KYC process can be done with various methods such as identity card verification, face verification, and invoice as proof of address.


Customer Due Diligence in Banking


Customer Due Diligence (CDD) is the control process implemented by banks to identify potential money laundering and terrorist financing risks carried by customers. Although these procedures are not exactly the same all over the world, the goal is the same: to identify risks. After the Know Your Customer control process, the customer's risk assessment is made with the correct customer information.


The customer's information is checked in the required databases in the region served by the bank. These databases generally consist of sanctions, PEP, banned, and wanted lists. The people on these lists carry high risks for money laundering and terrorist financing. In addition, in the banks that provide global services, the nationality of the customer, and the past financial transactions of the customer affect the risk level of the customer.


AML Name Screening Software


Our AML Screening and Monitoring Software automates banks' Customer Due Diligence control processes. Banks can automatically scan their customers in global comprehensive sanctions, PEP, and Adverse Media data during customer onboarding and customer monitoring processes.


How did Papara speed up Customer Onboarding and Customer Monitoring processes?


Transaction Screening Processes of Banks


Banks generally have a broad customer portfolio. In addition, the transactions mediated by banks are not limited to their own customers. One customer of the bank can make payments and transfer money to another bank's customer. An average-sized bank mediates thousands of money transfers throughout the day.


Banks are obliged to control the buyer and the sender in these money transfer transactions. Because if the bank mediates the payment sent to a banned or sanctioned person, this is a big crime. The consequences of the crimes caused by the uncontrolled reception of the receiver and the sender are very severe administrative and fines, and banks lose their reputation. In today's technology, manual controls are a waste of time and are dysfunctional. Banks need an automated transaction screening tool to carry out customer transactions in accordance with AML regulations.


Transaction Screening Software for Banks


Our Transaction Screening tool provides banks to control the receiver and sender in financial transactions in the global coverage AML database. Banks can automate the entire control process by integrating their own systems and transaction screening tool with the API. All AML screening takes place automatically against the background of the transactions performed by the bank. If the system catches a match, it alarms and stops the process. The scanning process takes place within seconds, and the customer process is not delayed.


Transaction Screening Case Study - Istpay


The Importance of Transaction Monitoring in Banking


Only people in the sanction, PEP, and Adverse Media database do not commit financial crime. Therefore, each customer carries a risk of financial crime for banks. For banks, any transaction they intermediate can be a financial crime. There are a lot of money laundering methods, and with the development of technology, these crime types increase even more. It is impossible for banks that mediate thousands of transactions during the day to control these transactions manually. In today's technology, transaction monitoring tools do this automatically.


Banks create various rules with AML Transaction Monitoring software, and every transaction they mediate is controlled automatically based on these rules. Banks were the most audited institutions in this period when regulations and audits for AML increased. Our AML transaction monitoring software enables banks to perform transactions they mediate in accordance with AML regulations.


Transaction Monitoring Software


With our advanced features, banks can create dynamic rules and scenarios and test these rules before they go live with the sandbox test environment. With real-time alarm management, the AML department can instantly see the alarm level of all transactions and assign tasks to teammates related to these transactions. All logs are recorded, and the bank can show these logs as evidence in possible audits. With customizable settings, banks make control processes more efficient and reduce AML false positives.


Independent AML Audits


Independent AML audits enable banks to control the AML compliance program end-to-end. Although banks have their own AML departments, it is vital to control them with independent audits. Deficiencies detected by independent audits may perhaps protect banks from millions of dollars in fines and prevent reputation losses. According to the independent audit reports, banks compensate for the deficiencies in AML compliance programs and further develop the AML program. Therefore, banks should have the AML program checked by performing an independent audit at one or two-year intervals.


Overview of AML Penalties in 2020


Regulators and supervisors increase their work year after year and impose heavy administrative and fines on organizations that do not meet their obligations. In 2018, $4.27bn fines were issued to organizations that did not meet AML obligations by regulators. In 2019, the penalty amount increased by approximately two times and became $ 8.14bn. Organizations facing penalties face major administrative penalties as well as fines and lose their reputation. The fact that AML failures have such severe consequences shows that this issue should never be neglected.


How Sanction Scanner Helps Banks?


Sanction Scanner provides Anti-Money Laundering solutions to strengthen banks' AML compliance processes. 


Sanction Scanner's solutions include;


Sanction Scanner's advanced AML solutions enable banks to meet their regulatory obligations by accelerating AML compliance processes end-to-end. You can contact us to get information about our AML solutions for banking.

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