Risk & Compliance Glossary

The Importance of Anti-Money-Laundering (AML) Policies

Tips for Fintechs to Comply with Anti-Money-Laundering Regulations

Anti-money-laundering (AML) policies and procedures exist to help financial institutions combat money laundering by stopping criminals from engaging in transactions to disguise the origins of funds connected to illegal activity.

Many countries—as well as economic and political partnerships, such as the European Union—have enacted, and continue to update, laws and regulations to combat money laundering and counter-terrorism financing (CTF).

International AML enforcement & procedures

Furthermore, the Financial Action Task Force (FATF), which is an inter-governmental body that sets standards to help countries develop and update their laws to combat money laundering and terrorism financing also helps ensure consistency. FATF includes 39 members, including 37 member jurisdictions as well as the European Commission and the Gulf Co-operation Council.

While AML laws and regulations differ by country, they invariably require financial institutions to maintain a robust set of policies as a means of achieving compliance. Such policies provide a detailed explanation of the people, processes, and technology a financial institution has in place to prevent the reintroduction of illicit funds into the financial system.

AML policy compliance in the U.S.

For example, in the United States under the Bank Secrecy Act (BSA), banks must create an effective AML compliance program, as well as establish the appropriate customer due diligence systems and programs. Banks must also screen against Office of Foreign Assets Control (OFAC) economic and trade sanctions and form an effective suspicious activity monitoring and reporting process. Just as importantly, to comply with the BSA, banks must employ a risk-based approach to anti-money laundering.

The benefits of a robust AML policy

In addition to helping financial institutions comply with AML and counter-terrorism financing laws and regulations, anti-money laundering policies and procedures help to set the tone for the organization and reinforce a culture of compliance.

Given the volume of transactions processed by banks, to put their AML policies into action, financial institutions rely on technology to prevent, detect, investigate and report suspicious transactions.