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The Importance of Ongoing Monitoring in Addressing Financial Crime Risks
The Importance of Ongoing Monitoring in Addressing Financial Crime Risks
Ongoing monitoring is a financial crime compliance requirement, helping businesses regulated under India’s Anti-Money Laundering (AML), Counter Terrorist Financing (CTF), and Counter Proliferation Financing (CPF) laws proactively and continuously identify and mitigate any Money Laundering (ML), Terrorism Financing (TF), and Proliferation Financing (PF) risks they may face. In this infographic, we have discussed the importance of ongoing monitoring as an indispensable component of an entity’s AML/CTF/CPF program. Ongoing monitoring is significant due to the following reasons:
Helps in the Mitigation of ML/TF/PF Risks
The typologies used to conduct financial crimes, such as ML/TF/PF, change with time in an attempt to avoid detection. Ongoing monitoring is an advantage which helps entities stay a step ahead of criminals seeking to exploit their services for their illicit activities. Ongoing monitoring ensures that financial crime risks are promptly detected. This allows the entity to investigate and manage these detected risks through adequate ML/TF/PF risk control measures.
Fulfils AML/CTF/CPF Compliance Obligations
Ongoing monitoring of customer relationships is a regulatory requirement under AML/CTF/CPF laws of India. Adopting mechanisms that facilitate ongoing monitoring helps entities meet their AML/CTF/CPF obligations while avoiding the risk of non-compliance. It also helps a business comply with other AML/CTF/CPF obligations. For example, ongoing monitoring may help in generating alerts whenever a Know Your Customer (KYC) document expires. This alert prompts entities to conduct re-KYC, and avoid the risk of violating AML/CTF/CPF laws related to Customer Due Diligence (CDD).
Enhances the Accuracy of Customer Risk Profiles
Customer risk profiles are dynamic and subject to change. Ongoing monitoring helps in detecting events that may result in the ML/TF/PF risk score of the customer changing. For example, if the Beneficial Owner (BO) of a customer changes to a person from a Financial Action Task Force (FATF) Grey Listed or blacklisted country, that may result in the customer posing higher ML/TF/PF risks. Therefore, ongoing monitoring helps in enhancing the accuracy of customer risk profiles.
Ensures Prompt Regulatory Reporting
Filing reports such as Cash Transaction Report (CTR), Suspicious Transaction Report (STR), etc, with the Financial Intelligence Unit of India (FIU-IND) is mandatory for entities regulated under AML/CTF/CPF regime of India. Ongoing monitoring facilitates the prompt filing of these reports. For example, ongoing monitoring ensures timely detection of ML/TF/PF risks, which can be investigated and reported by businesses through STR in a prompt manner.
Enables Efficient Decision-Making
Ongoing monitoring helps detect circumstances that would lead to a change in a customer’s ML/TF/PF risk profile. For example, if a customer becomes a Politically Exposed person (PEP), then their ML/TF/PF risk rating would need to be changed to high risk, triggering the necessity to conduct Enhanced Due Diligence (EDD). This also allows businesses to make informed decisions regarding handling of the ML/TF/PF risks posed by customers.
Supports in Adopting Risk-Based Approach
The risk-based approach to AML/CTF/CPF compliance prescribes implementation of ML/TF/PF risk control measures in proportion to the degree of financial crime risks posed by a customer. Essentially, the risk-based approach works on the principle of ‘higher the risks, higher the controls’. Ongoing monitoring mechanisms help businesses detect any circumstances that may lead to a change in ML/TF/PF risk exposure of the business. By identifying such changes in a timely manner, businesses can adjust their risk mitigation strategies accordingly.
Helps in Building a Positive Business Reputation
Ongoing monitoring helps entities detect and report ML/TF/PF risks in a timely manner. This builds a positive reputation for the business as an entity that is non-tolerant towards financial crimes. A positive brand reputation as an AML/CTF/CPF compliant business is a strategic advantage, increasing the trust of customers, investors, regulators, and other stakeholders.
The Importance of Ongoing Monitoring: Way Ahead
Ongoing monitoring is therefore a strategic tool which can enhance and strengthen a business’s AML/CTF/CPF compliance program. While manual implementation can be challenging and may be prone to errors, utilising AML/CTF/CPF software solutions automates the process, ensuring accuracy and generating timely alerts when needed.
We are committed to assisting proper enforcement of AML and CFT regulations to regulated entities in India by designing a personalised AML framework – policies, internal controls, and procedures – and ensuring effective implementation of the same.
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