Contact details
Phone No: +91 98248 84900
Email Id: [email protected]
When to Revise AML Policies and Procedures: Key Triggers for Reporting Entities
When to Revise AML Policies and Procedures: Key Triggers for Reporting Entities
Reporting Entities that fall under the Prevention of Money Laundering Act 2002 are required to frame and implement Anti-Money Laundering, Combating the Financing of Terrorism, and Counter Proliferation Financing (CPF) Policies and Procedures to detect, prevent, and mitigate Money Laundering (ML), Terrorism Financing (TF), and Proliferation Financing (PF).
The AML/CFT/CPF Policies and Procedures need to be regularly revised and updated to ensure that they are effective against dynamic and evolving financial crime risks. In this infographic, we will discuss the key triggers on the occurrence of which, Reporting Entities should revise their AML/CFT/CPF Policies and Procedures. These triggers are discussed below:
Changes in AML/CFT/CPF Laws
Whenever there are changes or amendments to the existing AML/CFT/CPF regulatory regime in India, or a new law or regulation is introduced, Reporting Entities must ensure that their AML/CFT/CPF Policies and Procedures align with them. Non-compliance with the new or amended AML/CFT/CPF laws may result in regulatory fines and reputational damage.
Changes in ML/TF/PF Risk Exposure of the Reporting Entity
There are many circumstances that may result in changes in ML/TF/PF risk exposure of a Reporting Entity. These circumstances include the following:
- Changes in Nature or Size of the Business: The Reporting Entity’s nature or size may undergo a change, resulting in an increased or reduced exposure to ML/TF/PF risks. For example, when a Reporting Entity’s business expands, resulting in an increase in customers or volume of transactions, its risk exposure changes because its existing controls are no longer enough to manage ML/TF/PF risks from the increased customers and transactions.
- Changes in Products or Services Offered: When the Reporting Entity introduces new products or services, its ML/TF/PF risk exposure changes. For example, if a financial institution begins offering virtual asset transfer services, its ML/TF/PF risk exposure may increase due to the vulnerable nature of virtual assets to financial crimes.
- Changes in Geographies Served: When a Reporting Entity begins to spread its business operations to other geographies, its risk exposure may undergo a change. For example, if a Reporting Entity begins to offer services to customers from countries that have weak AML/CFT/CPF regulations or are known tax havens, its risk exposure to financial crimes will increase.
When these circumstances occur, and the ML/TF/PF risk exposure of the Reporting Entity changes, the Reporting Entity should revise its AML/CFT/CPF Policies and Procedures to make sure that they are adequate to effectively manage the changed ML/TF/PF risk exposure, so that no ML/TF/PF risks fall through the crack unnoticed.
Changes Triggered by NRA, SRA
National Risk Assessment (NRA) or Sectoral Risk Assessments (SRA) evaluate and discuss the overall ML/TF/PF vulnerabilities a nation or a sector faces as a whole. Reporting Entities should update their AML/CFT/CPF Policies and Procedures to incorporate the findings of the NRA or SRA whenever they are published or updated.
After an Independent AML/CFT/CPF Audit
An independent AML/CFT/CPF audit identifies deficiencies in a Reporting Entity’s AML/CFT/CPF Program. It also provides suggestions and remedial measures that can be adopted by the Reporting Entity to overcome these deficiencies. Reporting Entities should incorporate the findings and suggestions of the AML/CFT/CPF audit by revising their existing AML/CFT/CPF Policies and Procedures.
Changes Triggered by FATF Updates
The Financial Action Task Force (FATF) is an international ML/TF/PF watchdog and AML/CFT/CPF standards setter. Whenever it issues updates, reports, publications, etc., it may trigger the necessity to change the AML/CFT/CPF Policies and Procedures of a Reporting Entity. For example:
– The FATF revises its Grey List or ‘Jurisdictions under Increased Monitoring’ and Blacklist or ‘High-Risk Jurisdictions subject to a Call for Action’ thrice a year. When the FATF adds or removes countries from these lists, Reporting Entities need to revise their AML/CFT/CPF Policies and Procedures to ensure that they are sufficient to manage the changed ML/TF/PF risk status customers from the FATF Grey Listed or Blacklisted country.
– Whenever FATF issues publications such as ML/TF/PF typology reports, best practices, guidance, etc., the Reporting Entity needs to make sure that its AML/CFT/CPF Policies and Procedures are aligned with the same. This helps Reporting Entities adopt and implement international standards with respect to AML/CFT/CPF.
Changes in the Legal or Organisational Structure of the Reporting Entity
A Reporting Entity’s legal or organisational structure may change due to mergers, acquisitions, new beneficial ownership, etc. These changes can impact how the Reporting Entity should structure its AML/CFT/CPF program, including roles, responsibilities, and other factors, leading to the need for revisions in AML/CFT/CPF Policies and Procedures.
When to Revise AML Policies and Procedures: Concluding Thoughts
Whenever any of the triggers discussed above occur, the existing AML/CFT/CPF Policies and Procedures may no longer be enough to address the ML/TF/PF risks and fulfil all required AML/CFT/CPF obligations. Regularly revising these policies is important to ensure that Reporting Entities remain compliant and protect their business from ML/TF/PF risks.
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.
Important Links
subscribe to newsletter
