How do you build an Anti-Money Laundering (AML) compliance framework?

It should be built around a key set of criteria: 

Risk 

Risk assessment is a pillar of AML compliance and represents a crucial first step in building an effective framework. No two institutions face the same AML risks and the framework should take into account the institution's product offering, services, clients and its geographical location. 

The framework needs to walk the line between the administrative burdens of over-compliance and the legal jeopardy of under-compliance. There is no one size fits all solution. Institutions must build a framework suitable for their risk profile. 

Internal Controls 

An AML framework must focus on the internal controls and systems the institution uses to detect and report financial crime. It must include a regular review of these controls to maintain their effectiveness. 

These controls must extend to the institution's employees who must be clear on their own role and responsibilities including how to conduct due diligence on business interests and how to navigate the policies and procedures which underpin the framework. 

Independent Audits 

An effective framework will also build in a schedule of independent testing and auditing which should be mandated to occur every 12-18 months at a minimum - ideally more. Any third-party selected must be qualified to conduct a risk-based audit appropriate to the institution. In larger institutions, an audit may be conducted by an internal team which is independent of the AML function. 

Training 

While every employee within an organisation should have a working knowledge of AML procedures, specific employees will bear greater responsibility for AML compliance. It will be appropriate for an organisation to implement a base level of training for all employees and to provide more targeted training to those with more specific AML responsibilities. 

Money Laundering Reporting Officer (MLRO) 

The individual responsible for overseeing institutional AML compliance is the MLRO. They will need sufficient experience, knowledge and authority to perform their duties effectively. These duties include: communicating with the regulatory authorities; auditors; and senior management. The MLRO will be the person making AML compliance policy recommendations based around audits and industry reporting.