Staying cautious while appointing an AML Principal Officer in India

AML regulations in India, whether it is the Prevention of Money Laundering Act, 2002 (PMLA) or the IFSCA (AML, CFT, and KYC) Guidelines, 2022, obligates the regulated entities to create and implement a strict AML/CFT program. The program includes:

  • Enterprise-Wide Risk Assessment
  • Putting in place AML and CTF controls and procedures
  • Compliance with AML regulations and identify the risk while onboarding the customers
  • Ongoing monitoring to spot the red flags
  • Timely reporting the suspicious transactions

Appointing an AML Principal Officer is necessary to manage and supervise these activities. An AML Principal Officer, also known as the compliance officer, is essential to ensure the development and enforcement of the AML framework. So, the entity must appoint an appropriate, skillful, competent, and knowledgeable person for this role.

However, regulated entities tend to make mistakes while engaging in the recruitment of AML Principal Officers. These mistakes can cause non-compliance with regulatory requirements, financial losses, reputational damage, or team demotivation. So, the entity must stay cautious and avoid these errors as much as possible.

To help the entities dodge these errors, we have listed them in this article to ensure that the regulated entities take the necessary care and ensure the right person is managing the AML function.

Vital responsibilities of an AML Principal Officer

An AML Principal Officer ensures compliance with the country’s AML rules and regulations applicable to the business. Specifically, even the PMLA and the IFSCA AML Guidelines provide the duties of an AML Principal Officer, which include:

  • Develop comprehensive AML policies, controls, and procedures for the business
  • Periodically review the implemented measures and make required changes therein
  • Study and assess the financial crime risks to the business from different aspects
  • Monitor the transactions, activities, and customers to identify the risks from them
  • Ensure timely implementation of adequate due diligence measures to prevent suspicious clients and activities
  • Identify the suspicious transactions and promptly report the same to the FIU
  • Create awareness around AML and train the staff, empowering them to perform the necessary AML/CFT tasks
  • Identify the best technology solution to help in the entity’s risk mitigation and AML compliance
  • Update the management about the entity’s AML initiates, gaps identified, and seek inputs

Thus, in tandem with the authorities, senior management and internal employees, the AML Principal Officer manages all the AML compliance-related responsibilities.

With the primary responsibility for AML compliance entrusted to the Principal Officer, the entities must exercise extreme caution while conducting the recruitment process.

Top mistakes the entity makes while recruiting an AML Principal Officer

The entity must have an effective recruitment process to get candidates with adequate skills to fulfill the AML duties. But there are possible mistakes during this recruitment process, which must be avoided to save costs and effort. These mistakes are:

Failure to create a clear, structured recruitment strategy

AML compliance requirements are forever to stay. The entity must adhere to its rules annually, all year long. So, it is a must to have a long-term AML compliance strategy, its requirements, and what the entity plans to do. Also, how an AML Principal Officer would contribute to achieving these goals must be clear.

Only with such clarity can the entity move ahead with recruiting the proper AML officer.

For a clear recruitment strategy, it is important to define the following:

  • Job description
  • Key responsibilities
  • Qualification required
  • Skills and competencies to have
  • Attitude and Characteristics
  • Any prior experience

Additionally, define the steps of the recruitment procedure. The vital steps are initial screening, shortlisting, assessment test, final interview, etc. It gives clear direction to the entity on how to move forward and what aspects of the candidate must be assessed at each stage. If required, the entity can create a flowchart to keep track of every step and note the result of each step.

The absence of such a strategy will lead to a complicated, chaotic process. This may result in the hiring of an ill-fitting candidate, reducing the efficiency of the AML function while increasing the risk exposure and wastage of resources. If the candidate cannot diligently perform the AML compliance responsibilities, the entity might have to repeat the process.

Lack of alignment with the business’s AML requirements

The entity needs to understand clearly what AML provisions apply to its business. The entity must also know the present status of its compliance. Awareness of the following is critical:

  • All compliance requirements that the entity needs to fulfil to avoid regulatory penalties.
  • The various potential money laundering risks the business can be exposed to.

Knowledge of these two aspects clarifies how the candidate must be. The entity can accurately judge the candidate and test their knowledge in these aspects.

The absence of such alignment with the AML requirements of the business might lead to the hiring of the wrong candidate. This may lead to a loss of money and time while adversely impacting the effectiveness of the AML function. So, these mistakes must be avoided.

No proper marketing and promotion technique

An AML Principal Officer is a critical position in any regulated entity. It is not a short-term role but a long-term association with the business. The candidate must lead from the front, manage the team, and take an interest in all things related to ensuring AML compliance across the organization. So, the entity must attract suitable candidates for this job.

It is possible only if the entity focuses on the job ads. The crucial factors are how the job ads are posted, where it is posted, and what is included in it. The job descriptions must be inclusive and transparent and describe the ideal candidate profile.

The entity must not make the mistake of posting the job ad everywhere or anywhere. Proper promotion is needed for any job position. The candidate pool will be the same if the entity keeps posting at the same place. The ad might not reach suitable candidates if posted only at one or two places. So, it is recommended to use the company’s website, social media pages, and recruitment portals for job postings.

Another crucial point is to look for the right candidate, even internally. There might be employees with more skills and the right attitude to take up responsibilities of AML compliance. They already fit the company culture. Even if some grooming and AML training are essential, an internal candidate is better than an external candidate.

Absence of qualification, certification, and experience

As mentioned, the entity must be very careful in recruiting an AML Principal Officer. It is a pivotal position, and the entity cannot go wrong with it. So, the entity must carefully check and verify the qualifications, certifications, and past experiences.

The candidate must have relevant qualifications and certifications. These must be specialization courses from credible global institutions. Also, the candidates’ knowledge in these courses must be tested.

AML compliance for a company requires management from an expert individual. An individual without experience will be unable to contribute much to the role. They must understand and experience handling each of the AML tasks – however big or small it is. The absence of such an experience will lead to a chaotic situation or non-compliance. It might lead to non-compliance penalties or reputational damage later.

So, please pay full attention to the incoming candidates’ experience and knowledge.

Ignoring background checks

AML Principal Officers reduce the threat of financial crimes for the regulated entities. They develop and execute policies to protect the business from money laundering and terrorism financing risks. When they have this role of protectors, they cannot be a part of financial crimes.

Therefore, background checks must be essential to the entity’s recruitment process. For general jobs, companies also conduct these checks. AML Principal Officer is a critical responsibility, so it becomes mandatory to check a candidate’s association with any financial crime.

appointing an AML Principal Officer

If the entity misses these checks and later finds the individual to be a part of a crime, questions on integrity might arise. It might also affect the business’s reputation in the market.

Not conducting enough training and development

Training and development are essential for any position in a company. Adequate training must be conducted even when selecting an AML Principal Officer.

Relevant training leads to brushing up on the existing knowledge of AML compliance. It keeps them up-to-date and eliminates any skill gaps. Such training programs help the officer know more about the industry, learn new AML technologies, and study global best practices in AML compliance.

Omission of judgment based on soft skills

If the entity has no metric for judging the soft skills of incoming candidates, then the entity is in for significant damage. A candidate with all the qualifications and experience but no attitude and personality to lead the business’s AML compliance function is detrimental to the business’s growth and reputation. So, start paying attention to the soft skills.

These soft skills include:

  • Teamwork
  • Analytical mindset
  • Positive attitude
  • Attention to detail
  • Drive to fulfil responsibilities
  • Alignment with the business’s core values
  • Ethical and law-abiding
  • Problem-solving attitude
  • Communication skills
  • Critical thinking
  • Conflict resolution

The entity must consider these soft skills while recruiting an AML Principal Officer.

Rushing through the process or taking it too slow

If the entity has a swift hiring process, it might recruit an unfitting candidate. Or, if it takes too slowly, the applicants might move to another organization. So, be careful of the duration of the hiring process. It must be neither too fast nor too slow.

Pushing the recruitment process too rapidly may lead to missing applications from some deserving candidates. By the time they apply, the entity might have already recruited a less deserving candidate. This can affect the efficacy of the AML compliance efforts.

While, if the entity is sluggish in the hiring process, the shortlisted candidates might move to another organization by the time they are called for the next round or offered the position. So, the entity must improve the candidate selection and analysis process’s speed.

Overlooking underqualified or overqualified candidates

A common problem in the hiring process is neglecting over-skilled or under-skilled candidates. Suppose the entity finds some resumes and feels like “they are too qualified to take up this job”. Or some applicants do not have the qualifications per the job description.

It is recommended that such resumes for the AML compliance profile must not be ignored. Since the candidate has applied despite knowing their overqualification or underqualification, the entity must judge them based on interviews. The entity may get to know their skills, personality, aptitude, and attitude while talking to them. The overqualified candidate might want to get back to the basic tasks of this job. Or the underqualified candidate is a talented and fast learner.

In both cases, it would be a win-win situation for the entity. So, before throwing the resumes, interact with them.

These are the common mistakes recruiters make in hiring an AML Principal Officer. The regulated entities must consider these points while recruiting an AML Principal Officer.

How can we help the regulated with AML compliance?

We at AML India help regulated entities with AML compliance; it is a requirement under the PMLA 2002 and IFSCA AML guidelines. Our services include policy documentation, enterprise-wide risk assessment, training the staff and the AML Principal Officer and AML health check.

We also help you set up an AML compliance department and hire a fitting AML Principal Officer. Our consultants analyze your business’s AML requirements before providing services. Such an assessment gives us a better idea of your company’s AML obligations. We help you conduct the hiring process, promote it, and select the right candidate.

About the Author

Pathik Shah

FCA, CAMS, CISA, CS, DISA (ICAI), FAFP (ICAI)

Pathik is a Chartered Accountant with more than 25 years of experience in compliance management, Anti-Money Laundering, tax consultancy, risk management, accounting, system audits, IT consultancy, and digital marketing.

He has extensive knowledge of local and international Anti-Money Laundering rules and regulations. He helps companies with end-to-end AML compliance services, from understanding the AML business-specific risk to implementing the robust AML Compliance framework.