Performance improvement in AML regulatory compliance

How to navigate an AML transformation

This new era of AML enforcement can be a turning point for your organization. The changes expected of reporting entities aren't just about maintaining compliance. View it as a chance to rethink how you manage risk, streamline compliance operations, and enhance transparency. Therefore, it is predicted that several reporting entities, considering size and scale, will embark upon various transformational changes to update their AML programs.

Here are some things to consider during an AML transformation:

Strategic AML program design and optimization

Your AML program should be proactive, not just reactive. It needs to be strategically developed to align with both regulatory expectations and your business priorities. A good first step is to conduct a gap assessment against FINTRAC’s evolving expectations and the recently published National Risk Assessment (NRA). This provides a good starting point in ensuring your program is risk-based, scalable, and effective.

Governance and resource allocation

Your AML program relies heavily on accountability and oversight. FINTRAC is now focusing more on the tone at the top and ensuring reporting entities have governance structures that understand their AML risks and obligations so they can make informed decisions. Make sure you review your governance structures periodically and update your workforce planning methodology to confirm your new processes are effective.

Additionally, consider maintaining a dashboard or a similar model to track your AML key performance indicators and regulatory readiness. This tool will provide greater transparency and help you focus on streamlined reporting and ongoing improvement.

Monitoring and screening

With the new sanctions evasion requirements, watchlist screening has become more important. To reduce false positives and improve detection of true matches, you must regularly assess your transaction monitoring and screening systems for effectiveness.

Your transaction monitoring rules must be documented, tracked, and updated in line with your client risk assessment to ensure you capture key risk factors, like transaction types, geography, product, and other significant exposures.

It’s important to understand your fuzzy logic settings and other watchlist screening controls to make sure you’re ready for audit scrutiny. By simplifying your screening for sanctions, politically exposed persons, and adverse media — and by incorporating AI and data analytics tools — you can support real-time identification and better-informed decision-making.

Beneficial ownership and transparency

To support the integration of the new discrepancy reporting obligation relating to beneficial ownership, you must now design workflows that identify and report any discrepancies found in line with these requirements. Training your front-line staff and investing in change management practices can help you maintain compliance. You may also consider establishing a framework to monitor these efforts over time.

Information sharing and privacy

Based on the new information sharing provisions in the PCMLTFA, if you are a financial institution, it’s essential to assess how you can engage with this initiative to strengthen the intelligence you exchange for ongoing monitoring purposes. By developing internal protocols and coordinating with your privacy and legal teams, you can ensure compliance with data protection laws as you embark on your intelligence sharing journey.

Best practices for reporting entities

To stay ahead of these shifting obligations, your organization may want to consider these best practices:

• Adopt a proactive compliance culture, with leadership engagement and continuous improvement
• Invest in more innovative technology and automation, especially for monitoring and reporting
• Train staff regularly, ensuring awareness of new obligations, trends, and typologies
• Engage external advisors to validate program effectiveness and regulatory alignment

How can a third-party partner help?

Consider the following real-world example:

A Financial Services client was undergoing an expansion and was looking to reduce its dependency on its key leaders and key functional roles. The business knew they needed a better structure, clearer role definitions, and to update their internal controls so they could make sure their new service offerings were managed in terms of risk, efficiency, and customer experience. They engaged an external advisor for support.

The first thing the external partner did was conduct a comprehensive assessment to identify any control gaps. From there, those gaps were addressed by implementing robust internal controls and streamlining business processes. Additionally, it was essential to evaluate how these adjustments would integrate with existing workflows, company culture, and future scalability. Not only did the unbiased third-party advisor help them develop new workflows and services, but they also improved their customer experience and service delivery.