LO 61.3: Explain practices for managing ML/FT risks in a group-wide and cross-border context, and describe the roles and responsibilities of supervisors in managing these risks.
ML/FT Risk Management for Cross-Border Banks
When a bank operates in multiple jurisdictions, it is subject to numerous country regulations. Each banking group {group refers to an organizations one or more banks and the branches and subsidiaries of the bank(s)] should develop group-wide AML/ CFT policies and procedures and consistently apply those policies across the groups international operations. Policies should be consistently applied (and supportive of the groups broader policies and procedures regarding ML/FT risks) even if requirements differ across jurisdictions. If the host jurisdictions requirements are stricter than the groups home country, the branch or subsidiary should adopt the host jurisdiction requirements.
If a host country does not permit the proper implementation of FATF standards, then the chief AML/CFT officer should inform home supervisors. In some instances, the bank may need to close operations in the host country.
In a cross-border context, AML/CFT procedures are more challenging than other risk management processes because some jurisdictions restrict a banks ability to transmit customer names and balances across national borders. However, for risk management purposes, it is essential that banks be able to, subject to legal protections, share information about customers with head offices or the parent bank.
Risk assessment and management activities, such as customer risk assessments, group-wide risk assessments, and internal and external audits, apply to multi-national banks. When business is being referred to a bank, the banks own AML/CFT standards must be used in place of the jurisdiction of the referring bank, unless the introducer is in a jurisdiction with equal or stricter standards and requirements.
Banks involved in cross-border activities should:
Integrate information on the customer, beneficial owners of the customer, and the funds involved in the transaction(s).
Monitor significant customer relationships, balances, and activity on a consolidated basis whether the account is on- or off-balance sheet, as assets under management (AUM), or on a fiduciary basis.
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Appoint a chief AML/CFT officer for the whole group who must ensure group-wide
compliance (across borders) of AML/CFT requirements.
Oversee the coordination of group-wide information sharing. The head office should be informed of information regarding high-risk customers. Local data protection and privacy laws must be considered.
For larger banks, the ability to centralize bank processing systems and databases may allow for more effective and efficient risk management.
Role of Supervisors
Bank supervisors are expected to: Comply with FATF Recommendation 26 and apply the Core Principles fo r Effective
Banking Supervision as it relates to the supervision of AML/CFT risks. FATF states the principles that are relevant to money laundering and the financing of terrorism. Set out supervisory expectations governing banks AML/CFT policies and procedures.
Adopt a risk-based approach to supervising banks ML/FT risk management systems. To Understand the risks present in other jurisdictions and the impact on the supervised that end, supervisors must:
Understand the risks present in other jurisdictions and the impact on the supervised Evaluate the adequacy of the banks risk assessment based on the jurisdictions
Evaluate the adequacy of the banks risk assessment based on the jurisdictions
banks.
national risk assessments. Assess the banks risks in terms of the customer base, products and services, and
Assess the banks risks in terms of the customer base, products and services, and
geographical locations in which the bank and its customers do business. Evaluate the effectiveness in implementation of the controls (e.g., CDD) designed
Evaluate the effectiveness in implementation of the controls (e.g., CDD) designed
by the bank to meet AML/CFT obligations. Allocate resources to conduct effective reviews of the identified risks.
Allocate resources to conduct effective reviews of the identified risks.
Protect the integrity of the financial system by protecting the safety and soundness
of banks relative to ML/FT risk management. This means making it clear that supervisors will take action, action that may be severe and public, against banks and their officers who fail to follow their own internal procedures and regulatory requirements. Make sure the stricter of two jurisdictions requirements is applied.
Make sure the stricter of two jurisdictions requirements is applied.
Verify a banks compliance with group-wide AML/CFT policies and procedures
during on-site inspections.
Extend full cooperation and assistance to home-country supervisors who need
to assess a banks overseas compliance with group-wide AML/CFT policies and procedures. Ensure there is a group audit and determine the scope and frequency of audits of the
Ensure there is a group audit and determine the scope and frequency of audits of the
groups AML/CFT risk management procedures. Ensure the confidentiality of customer information provided to supervisors.
Ensure the confidentiality of customer information provided to supervisors.
Make sure that supervisors are not classified as third parties in countries where there are restrictions on the disclosure of customer information to third parties.
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