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AML Compliance Checklist for Cross-Border Payments Firms

Remittance Knowledge & Training

When it comes to the rapid expansion of financial technology (fintech), Asia-Pacific (APAC) is leading the way. As economic integration and private sector innovation increase, many countries throughout the region are experiencing growth and regulatory reform across various verticals of the payments industry – the cross-border payments sector included. In this period of transformation, while new systems and regulations are being planned, firms have an opportunity to be proactive and develop a scalable, sustainable approach to financial crime risk detection.

In chapter six of our Guide to Anti-Money Laundering (AML) For Cross-Border Payments and Remittances, the hallmarks of effective AML compliance are discussed. From maintaining an iterative mindset to viewing AML and counter-terrorist financing (CTF) as a strategic priority from the outset, the following list of best practices aims to help cross-border payment firms mitigate risk and remain compliant in the face of shifting regulatory and risk environments. Firms may use this as a checklist to build their AML infrastructure and manage their day-to-day risk management processes. 

1. Stay Across the Latest Updates From Key Regulators 

It is vital that firms know, understand, and act upon the relevant licensing, registration, AML/CTF, and sanctions laws and regulations in all the jurisdictions in which they operate. While grasping the fundamentals outlined by the Financial Action Task Force (FATF) is extremely helpful, it is important to account for local nuances, which can affect various customer due diligence (CDD) measures. 

In addition to keeping pace with local authorities, the savviest of firms pay attention to the region’s regulators known to drive forward innovation. The Australian Transaction Reports and Analysis Centre (AUSTRAC), the Monetary Authority of Singapore (MAS), and the Hong Kong Monetary Authority (HKMA) are often regarded as the industry’s ‘first-movers’, providing topical guidance for supervised firms and running consultation periods to inform regulatory reform. 

Regardless of whether a firm is registered in any of the aforementioned regulators’ jurisdictions, the resources they produce are worth paying attention to as they often outline industry best practices informed by a risk-based approach. Some resources to be aware of include the following:

2. Know Your Partners

Cross-border payments often involve working with other businesses, whether legacy firms, overseas agents within a payments network, or correspondent banks. Firms must assess their partners’ anti-financial crime approach and be satisfied that it complies with relevant laws and regulations. Practically, this means asking questions surrounding the partner’s technology, people, and policies. How do they manage vast amounts of data? Do their fraud and AML teams work in silos? Are thorough records kept regarding client accounts and activities? Additionally, firms can ensure they understand the ownership structures of any potential partners with a robust know-your-business (KYB) screening solution. 

At the same time, to be an appealing partner themselves, firms also need to demonstrate that they meet relevant standards, and it is essential to have documented policies and procedures to hand to show this. A further requirement here is to ensure a consistent approach between cooperating firms to eliminate major gaps in compliance or potential future operational bottlenecks. 

3. Thoroughly Understand the Risk Environment

There are substantial financial crime risks around cross-border payments, whether linked to major predicate crimes such as fraud, money laundering, terrorist financing, or sanctions evasion. As a result, firms need to understand their risk environment and how the typologies, behaviors, and wider geopolitical environment vary in every jurisdiction in which they operate. 

It is often a primary criminal aim to get illicit funds out of a country before the authorities can interdict them. Firms need to monitor the FATF, regulators, law enforcement, and other sector publications to understand criminal typologies and the abuse of emerging products and channels. For example, we have recently reported on MAS’ warnings to regulated entities about wealth management sector risks and money mules. In most cases, guidance papers like these will include practical insight surrounding financial red flag indicators that can help firms enhance their customer screening and transaction monitoring tools.

4. Use Regtech Solutions Prudently

With the right platforms and data, automation can bring large efficiencies combined with increased effectiveness. But this is not an assured outcome with every platform, and firms must think carefully about how they deploy systems. Some ‘sub-principles’ to consider are listed below:

  • Reliable and real-time: The volume and frequency of cross-border payments are high and rising. The systems need to be able to onboard, monitor, and screen customers and must therefore be capable of managing vast amounts of data and doing this consistently, 24 hours a day, making cloud computing essential.
  • Targeted and risk-focused: The types of financial crime risks in the cross-border operating space are wide-ranging, and there is a risk with some less sophisticated platforms that firms will be drowned in a sea of false positives. Therefore, firms must look for platforms that use artificial intelligence (AI) and machine learning to reduce waste and target real risks. 
  • Adaptable and scalable: Platforms must be flexible enough to respond swiftly to changing environments. But they also need to be rapidly scalable for periods of major business growth and adaptable enough to work with new products and delivery channels as the firm expands its offering.

5. Keep Long-Term Goals in Sight 

While it can appeal to firms to chase short-term, box-ticking compliance objectives to get through the next audit or keep an executive stakeholder happy, the best compliance teams will keep their longer-term vision in mind. Given the importance of automation, this means having a long-term technology roadmap allowing time to assess vendors, manage internal stakeholders, and secure the budget and approvals needed to support this transition.

Guide to AML For Cross-Border Payments & Remittances

Discover the key financial crime threats facing the APAC cross-border payments sector and how best to mitigate them.

Download now

Originally published 18 May 2023, updated 24 May 2023

Disclaimer: This is for general information only. The information presented does not constitute legal advice. ComplyAdvantage accepts no responsibility for any information contained herein and disclaims and excludes any liability in respect of the contents or for action taken based on this information.

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