Outline Compliance Monitoring, AML/CTF, Transaction Monitoring & KYC?

Outline Compliance Monitoring, AML/CTF, Transaction Monitoring & KYC?

What is Compliance Monitoring?

Compliance monitoring is the process and technology used to detect compliance and risk issues associated with an organization's financial and operational environment. The financial and operational environment consists of people, processes, and systems working together to support efficient and effective operations.

Controls are put in place to address risks within these components. Through continuous monitoring of the operations and controls, weak or poorly designed or implemented controls can be corrected or replaced – thus enhancing the organization’s operational risk profile. Investors, governments, the public and other stakeholders continue to increase their demands for more effective corporate governance and business transparency.

What is AML / CTF?

As the global GDP has increased in the last two decades, so too has the magnitude of all-source money laundering. The IMF and World Bank estimate that 3%-5% of global GDP is laundered-approximately $2.17- $ 3.61 trillion annually. Narco-traffikers, kleptocrats, transnational organized criminals are but three significant entities that engage in the effort to disguise their illegal proceeds derived from more than 300 predicate crimes.

When criminals (including corrupt officials) and organized crime syndicates disguise the illicit nature of their proceeds by introducing them as legal funds into the stream of legitimate commerce and finance, they not only are clandestinely hiding their ongoing affairs but they are also tainting the international financial system and eroding public trust in its integrity. Although some of the funds used to finance terrorism have come from non-laundered funds donated to dual-purpose charities, through the formal financial sector, the amount that has been blocked globally in the formal sector is less than $170 million dollars. Although international institutions argue that terrorist financiers are employing “new modalities”, in fact, the opposite is true.

Terrorist financiers are reverting to traditional ways such as hawala, trade based money-laundering, and cash couriers, particularly in countries with non-existent or weak national anti-money laundering systems to move their funds to finance their terrorist activities. Financial and anti-money laundering tools help to expose the infrastructure of criminal organizations, the web of corruption, or a conspiracy to commit terror acts; provide authorities with a roadmap to those who facilitate the criminal and illicit activities; lead to the recovery and forfeiture of unlawfully-acquired assets; and support broad deterrence against a wide range of criminal activities including the financing of terrorism, which cannot be thwarted absent a comprehensive anti-money laundering regime.

INL’s strong anti-money laundering and counter-terrorist financing (AML/CTF) programs, strategies, and tools help committed partners to prevent, trace and recover illicitly-acquired assets that are the proceeds of more than 300 predicate crimes, and to disrupt and dismantle global terrorist financial and criminal laundering operations.


MLRO & Controlled Functions e.g. CF10, CF11 etc.

The role of the Money Laundering Reporting Officer

A Money Laundering Reporting Officer (MLRO) is the officer nominated within a firm or practice to make disclosures to the Serious Organised Crime Agency (SOCA) under the Proceeds of Crime Act 2002 and the Terrorism Act 2000.

Under Regulation 20 of the Money Laundering Regulations 2007, each firm within the regulated sector is required to appoint an MLRO, referred to as the Nominated Officer. The MLRO must:

Receive and consider internal disclosures of suspected money laundering or terrorist financingDecide whether there are sufficient grounds for suspicion to pass the disclosures to SOCAFile a Suspicious Activity Report (SAR) with SOCA where the grounds for suspicion are sufficientLiaise with SOCA to deal with such matters as consent to proceed with a transaction and other disclosure issues, particularly with regards to clients or third parties.

As such, the role of the MLRO should be undertaken by a senior person within the firm who has sufficient responsibility and seniority enabling him to have access to all of the firm's client files and to make independent reporting decisions impacting on the firm's client relationships.

It is usual, but not a requirement under the Regulations, for the MLRO to take responsibility for other of the firm's anti-money laundering obligations. These might include:

Designing and setting-up internal anti-money laundering procedures and policies including customer due diligence measures, reporting, record-keeping, risk assessment, management and control systemsOrganising and arranging anti-money laundering training of the firm's staffAdvising and guarding against tipping-off or prejudicing an investigation once an SAR has been made.

What is Transaction Monitoring?

Transaction Monitoring is a fraud detection for identifying fraudulent online and mobile activity in real time. With the sharp rise in Trojan attacks including man-in-the-browser (MITB) attacks, proactively monitoring online and mobile transactions is a crucial component of a layered security strategy.

Transaction monitoring systems use profiling and/or rules-based monitoring methods.  Profiling identifies unusual patterns of customer activity by applying statistical modelling techniques. These compare current patterns of activity to historical activity for that customer or peer group.  Rules-based monitoring compares customer activity to fixed pre-set thresholds or patterns to determine if it is unusual.

What is KYC?

Know your customer (KYC) refers to due diligence activities that financial institutions and other regulated companies must perform to ascertain relevant information from their clients for the purpose of doing business with them. The term is also used to refer to the bank regulation which governs these activities.

Know Your Customer processes are also employed by companies of all sizes for the purpose of ensuring their proposed agents', consultants' or distributors' anti-bribery compliance. Banks, insurers and export credit agencies are increasingly demanding that customers provide detailed anti-corruption due diligence information, to verify their probity and integrity.

Know your customer policies are becoming increasingly important globally to prevent identity theft, financial fraud, money laundering and terrorist financing.

Due to the increasing number of regulations and need for operational transparency, organizations are increasingly adopting the use of consolidated and harmonized sets of compliance controls.