Financial institutions have specific compliance obligations for which they are responsible to combat financial crime and terrorism financing. Local and global authorities regulate these obligations with different scopes but similar goals. Financial institutions must comply with both regulations to ensure AML and CTF compliance; otherwise, they might face crucial fines and loss of reputation and money. This blog mentions the most essential AML regulations in different regions of the world by stating the authorities of related jurisdictions.
Global AML Regulations
The Financial Action Task Force (FATF) is the global standard-setting body for anti-money laundering (AML) and countering the financing of terrorism (CFT). The FATF Recommendations provide a comprehensive framework for AML and CFT measures and are recognized as the global standard for combating money laundering and the financing of terrorism.
The Financial Action Task Force (FATF)
FATF is an intergovernmental organization established to prevent money laundering and terrorist financing. With the membership of 36 countries, FATF has strong powers worldwide. The primary objective of this organization is to set global standards to ensure Anti Money Laundering compliance. Therefore, the FATF is a "policy-making body." FATF regularly publishes AML and CTF regulation guidance. The member states and the member financial institutions of these organizations must comply with these existing regulations and new money laundering regulations. FATF imposes sanctions on financial institutions that do not comply with regulations. Also, the General Assembly of FATF meets three times a year.
AML Regulations in European Union
The EU has implemented the EU's Fourth-Fifth-Sixth Anti-Money Laundering Directive (AMLD4, AMLD5, AMLD6), which requires member states to establish a comprehensive AML framework and establish a central register of beneficial ownership information for companies. Financial institutions are required to conduct customer due diligence, report suspicious transactions, and establish internal AML controls.
EU 5AMLD and 6AMLD
The European Union publishes directives to prevent money laundering and the financing of terrorism globally and contribute to the financial system's integrity and growth. Periodically published directives provide information on current money laundering, terrorist financing, and criminal risks faced by financial markets. The EU's Fifth Anti-Money Laundering Directive
(5AMLD) was published on 9.08.2018 and will affect 10.01.2020. The 6AMLD draft was published in late 2018 and will come into effect in June 2021.
5AMLD includes instructions on cryptocurrency and crypto-wallets. It also includes new legal requirements for risky customers and PEP lists in payment transactions.
6AMLD includes the criminal liability of persons associated with money laundering. It contains provisions stating that more stringent penalties will be imposed on those convicted of money laundering. It aims to improve the transparency of financial transactions and increase the accountability of financial institutions and other entities that are considered to be at high risk of money laundering or terrorism financing. It includes measures such as the creation of centralized bank account registries, the expansion of the definition of "politically exposed persons" (PEPs), and the requirement for financial institutions to conduct enhanced due diligence on PEPs and high-risk third countries. Additionally, AMLD6 has provisions for virtual currency exchanges and custodian wallet providers to comply with AML/CFT regulations and register with the relevant authorities.
AML Regulations in the UK
The UK has implemented the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017), which implements the EU's 4th Anti-Money Laundering Directive. It includes many similar points like customer due diligence measures, the creation of suspicious activity reports (SAR), and the appointment of a Money Laundering Reporting Officer (MLRO) in certain organizations.
FCA - The Financial Conduct Authority
The Financial Conduct Authority is a financial regulatory organization in the United Kingdom. FCA regulation aims to protect consumers, increase market integrity, and promote competition. To achieve this objective, it has the authority to regulate, supervise, and authorize.
- Regulation: Determination of minimum legal standards for financial products.
- Supervision: To ensure that UK financial institutions operate safely and comply with specific anti-money laundering regulations.
- Authorization: Authorize financial institutions that fulfill the requirements.
AML Regulations in the USA
The USA has implemented the Bank Secrecy Act (BSA), which requires financial institutions to establish AML programs. The USA PATRIOT Act, passed in response to the terrorist attacks on September 11, 2001, expanded the BSA's provisions and strengthened the USA's AML framework. The Financial Crimes Enforcement Network (FinCEN) is the primary regulator for AML compliance in the USA.
BSA - The Bank Secrecy Act
The Bank Secrecy Act (BSA) is the most important US AML and CTF regulation. The Bank's Privacy Act is administered by the Financial Crimes Enforcement Network (FinCEN). Banks and other financial institutions in the United States must comply with this regulation and fulfill obligations. BSA focuses on money laundering and terrorism financing. Within the scope of BSA, financial institutions should use the compliance program. Also, institutions should report suspicious activities and keep detailed records.
AML Regulations in Asia
Many Asian countries have implemented AML regulations that align with the FATF Recommendations, including China, Hong Kong, India, Japan, Singapore, and South Korea. These regulations require financial institutions to establish AML programs, conduct customer due diligence, and report suspicious transactions. On a country basis, the Hong Kong Monetary Authority and the Monetary Authority of Singapore are two of the prominent authorities in the region.
HKMA - Hong Kong Monetary Authority
The Hong Kong Monetary Authority is responsible for the monetary policy and banking systems in Hong Kong. In addition, the HKMA fights against money laundering and the financing of terrorism. Financial institutions in Hong Kong must comply with AML and CTF compliance.
MAS - Monetary Authority of Singapore
The Singapore Monetary Authority (MAS) is the central bank of the state. It also regulates the financial sector. MAS's duties include conducting monetary policy and supervising financial institutions. It also has policies for financing terrorism and preventing money laundering. MAS imposes large fines on financial institutions that do not comply with policies.
AML Regulations in Australia
Australia has implemented the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act) which is the primary legislation for AML and countering the financing of terrorism in Australia. It is administered by the Australian Transactions and Reporting Analysis Centre (AUSTRAC), which is Australia's financial intelligence agency and regulator for AML/CTF compliance.
The Australian Transaction Report And Analysis Center (AUTRAC)
It is the most important financial intelligence agency of the Australian government. The Anti-Money Laundering and Counter-Terrorism Financing Act have taken measures against elements threatening the financial system. Financial institutions in Australia must submit reports to the AUSTRAC regarding AML/CTF. AUSTRAC imposes sanctions on persons or financial institutions that do not comply with these rules.
AML Regulations in MENA
The Gulf Cooperation Council (GCC) has implemented its own set of AML regulations, known as the GCC Common Law for Combating Money Laundering and the Financing of Terrorism. This law applies to all GCC member states, which include Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates (UAE).
The Gulf Cooperation Council (GCC)
The council was established in 1981 with the goal of promoting economic cooperation and integration among its member states. The GCC countries have significant oil and gas reserves and are major producers of crude oil and natural gas. The council has also been working to diversify its economy and reduce its dependence on oil and gas exports. GCC countries have also been working on developing a regional AML strategy, which aims to enhance the effectiveness of AML/CFT measures and to improve the coordination and cooperation among the member states. They have made significant efforts to improve their AML frameworks and comply with international standards. However, they still face challenges in implementing and enforcing these regulations effectively, such as the lack of human and technical resources and the need to keep up with the latest developments in money laundering and terrorist financing methods.