Banking & Insurance Industry Expectations
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1/5/2014 Banking & Insurance Industry Expectations
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FINANCIAL SECTOR TALENT ENRICHMENT PROGRAMME
COMPLIANCE IN BANKING
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FINANCIAL SECTOR TALENT ENRICHMENT PROGRAMME
1/5/2014 Banking & Insurance Industry Expectations
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COMPLIANCE IN BANKING
➢AMLA COMPLIANCE
➢BANKING COMPLIANCE
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FINANCIAL SECTOR TALENT ENRICHMENT PROGRAMME
AMLA COMPLIANCE
ANTI MONEY LAUNDERING AND COUNTER FINANCING
OF TERRORISM
Malaysian Anti Money Laundering Act 2001 /
Malaysian Anti-Money Laundering (Amendment) Act
2003
1/5/2014 Banking & Insurance Industry Expectations
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FINANCIAL SECTOR TALENT ENRICHMENT PROGRAMME
AMLA COMPLIANCE
Note:
•Key Provisions Under The Act
•Concept & Fundamentals of Money Laundering
[Discussed In Phase 1 Training]
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FINANCIAL SECTOR TALENT ENRICHMENT PROGRAMME
AMLA COMPLIANCE
Some Operational Issues
1/5/2014 Banking & Insurance Industry Expectations
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Key Is To:
•Implementing a robust Know Your Customer (KYC)
Policy
•Always Have An “Enquirying Mind”
Avoid:
Lapses!
Negligence!
Breaches!
The Wrath of the Law!
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FINANCIAL SECTOR TALENT ENRICHMENT PROGRAMME
AMLA COMPLIANCE
A Recap: BNM Guidelines
•UPW/GP1: Standard Guidelines on Anti-Money
Laundering and Counter Financing of Terrorism
(AML/CFT)
•UPW/GP1[1]: Sectoral Guidelines 1 on AML/CFT
[Guidelines issued with effect from Nov 2006]
1/5/2014 Banking & Insurance Industry Expectations
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FINANCIAL SECTOR TALENT ENRICHMENT PROGRAMME
AMLA COMPLIANCE
Purpose & Spirit of new BNM Guidelines:
• To address the requirements that must be complied
by FIs under AMLA to combat money laundering
and financing of terrorism activities
•Guidelines are drawn up per AMLA and Financial
Action Task Force (FATF)’s 40 + 9
recommendations
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FINANCIAL SECTOR TALENT ENRICHMENT PROGRAMME
AMLA COMPLIANCE
BNM Guidelines - Salient Features:
1/5/2014 Banking & Insurance Industry Expectations
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➢ Customer Acceptance Policy
- to address the establishment of customer
relationship
- risk and customer profiling procedures
→ documentary evidence is key!
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FINANCIAL SECTOR TALENT ENRICHMENT PROGRAMME
AMLA COMPLIANCE
➢Customer Due Diligence Process
- Objective is to obtain satisfactory
evidence and records of identity and
legal existence of all potential
customers
- Note the various documentation
required for different customers -
individuals, businesses and
corporations, etc
- Be mindful of cases involving
Legal Arrangements, Beneficial
Ownership and Control
and Intermediaries
1/5/2014 Banking & Insurance Industry Expectations
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FINANCIAL SECTOR TALENT ENRICHMENT PROGRAMME
AMLA COMPLIANCE
➢Customer Due Diligence Process (contd.)
- Non-face-to-face customer
relationship
- Foreign Politically Exposed
Persons (PEPs)
- Higher Risk Customers (e.g. HNWI,
NRI, high risk locations, countries and
jurisdictions)
Applies also to existing customers: customer /
transaction profiling process
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FINANCIAL SECTOR TALENT ENRICHMENT PROGRAMME
AMLA COMPLIANCE
➢Record Keeping
- Retention Period: 6 years minimum
- Audit Trail: critical where tracing is
required by the authorities
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➢On-Going Monitoring
- Looking out for any unusual circumstances and
irregularities
- Adequate MIS
- Internal criteria setting: spotting “red flags”
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FINANCIAL SECTOR TALENT ENRICHMENT PROGRAMME
AMLA COMPLIANCE
➢Suspicious Transaction Reporting (STR)
- When to submit a STR?→ You suspect or have reason
to suspect that:
i. the
transaction/attempted transaction
involves proceeds from an
unlawful activity or
ii. the customer is
involved in money
laundering or financing of
terrorism
- STR reporting mechanism→ STR submitted to FIU / BNM
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FINANCIAL SECTOR TALENT ENRICHMENT PROGRAMME
AMLA COMPLIANCE
➢Combating Financing of Terrorism
•Name matching process against UN Consolidated
List and such orders as issued by Minister of
Internal Security
•Same reporting methodology as STR
•To ensure information in database is updated and
relevant
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FINANCIAL SECTOR TALENT ENRICHMENT PROGRAMME
AMLA COMPLIANCE
➢ AML/CFT Compliance Programme
1. To develop, formulate and implement policies,
procedures and internal controls for AML/CFT
2. Mandated not just by Guidelines but also by
law
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3. Includes staff training and awareness
programmes
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FINANCIAL SECTOR TALENT ENRICHMENT PROGRAMME
AMLA COMPLIANCE
Know Your Customer Policy
Objectives
•To accept only legal and bona fide
customers
•To properly identify customers to
understand antecedent risks
•To monitor customers accounts &
transactions
•To implement processes to effectively
manage the risks
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FINANCIAL SECTOR TALENT ENRICHMENT PROGRAMME
1/5/2014 Banking & Insurance Industry Expectations
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AMLA COMPLIANCE
Know Your Customer Policy
3 critical criteria to satisfy KYC:
•Minimum account opening policies, procedures
& processes
•Identification of accounts that are classified as
high risk
•Monitoring of customers’ transactions
Note other AML tools & mechanisms:
Policies & procedures / Internal controls / Monitoring and
reporting of suspicious transactions / Training
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FINANCIAL SECTOR TALENT ENRICHMENT PROGRAMME
AMLA COMPLIANCE
Know Your Customer Policy
✓Whole focus of KYC is to detect and deter suspicious
transactions and activities
✓KYC is the most effective tool to combat money
laundering!
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FINANCIAL SECTOR TALENT ENRICHMENT PROGRAMME
SUSPICIOUS ACTIVITY INDICATORS
[Red Flags]
❑Unusual Customer Activities
❑Activities Inconsistent with the Customer’s
Business or Profile
❑Changes in Bank to Bank Transactions
❑Customer Who Provides Insufficient or
Suspicious Information
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FINANCIAL SECTOR TALENT ENRICHMENT PROGRAMME
SUSPICIOUS ACTIVITY INDICATORS
1/5/2014 Banking & Insurance Industry Expectations
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[Red Flags]
❑Certain Funds Transfer Activities
❑Activities that may indicate Terrorists Financing
❑Efforts to Avoid Reporting or Record-keeping
Requirements
❑Bank Employees and Agents
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FINANCIAL SECTOR TALENT ENRICHMENT PROGRAMME
RISK CATEGORIES
❑High Risk Jurisdictions
[Risk scores of countries are derived from
published Reports/Indices: FATF, TI]
❑High Risk Businesses
❑High Risk Products & Services
[readily converting cash into a Monetary
Instrument ; any product or service facilitating
rapid value movement]
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FINANCIAL SECTOR TALENT ENRICHMENT PROGRAMME
Risk Assessment Framework
✓Profiling your customers
✓Risk scoring
✓High risk accounts / transactions
✓Other risk categories
✓High net worth individuals
✓Suspicious activity / transaction reports
✓Tracking, monitoring and reporting
✓Politically Exposed Persons
→ Self Assessment Process
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FINANCIAL SECTOR TALENT ENRICHMENT PROGRAMME
AML COMPLIANCE REPORTING
➢Once knowledge on suspicion or reasonable suspicion is
obtained suspecting that funds are the proceeds of a
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criminal activity, or are related / linked / used for terroristfinancing,
➢Staff should promptly report the suspicious activity to the
designated Branch/Department Compliance Officer(BCO/DCO) for onward possible reporting, if necessary,to the Head Office AML Compliance Officer (AMLCO) .
➢Information on a strictly need to know basis. A customer
SAR file for the reporting should be maintained for followup and monitoring.
➢Where necessary, and upon evaluation of the case, AMLCO
will raise STR to FIU/BNM
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FINANCIAL SECTOR TALENT ENRICHMENT PROGRAMME
ROLE OF AML COMPLIANCE OFFICER
➢The Bank’s designated principal liaison officer and will
cooperate and work with the regulators and other
relevant enforcement agencies in compliance with AML /
CFT measures.
➢Keep abreast of regulatory developments and advise the
business accordingly.
➢To formulate and align organization-wide internal
policies on AML / CFT framework that will be
communicated to all staff, particularly Branch /
Department Compliance Officers to ensure compliance
with BNM framework and laws/ regulations governing
AML.
1/5/2014 Banking & Insurance Industry Expectations
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FINANCIAL SECTOR TALENT ENRICHMENT PROGRAMME
ROLE OF AML COMPLIANCE OFFICER
➢Monitors adherence to and ensure adequacy of money
laundering deterrence procedures, including the AML
Risk Matrix.
➢Remind and assist line management to ensure
compliance with all relevant anti-money laundering
regulations.
➢Shall have timely access to customer identification data
and other customer due diligence information,
transaction records, and other relevant information to
enable efficient collaboration / assistance to Regulator /
Enforcement Agencies.
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FINANCIAL SECTOR TALENT ENRICHMENT PROGRAMME
ROLE OF AML COMPLIANCE OFFICER
➢Will provide relevant content / training materials.
➢The Organisation’s employees can directly and / or
via their designated BCO / DCO contact the AMLCO
for guidance on any compliance query or reporting of
1/5/2014 Banking & Insurance Industry Expectations
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large or suspicious / illegal activity encountered
during the course of their work.
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FINANCIAL SECTOR TALENT ENRICHMENT PROGRAMME
BANKING COMPLIANCE
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FINANCIAL SECTOR TALENT ENRICHMENT PROGRAMME
BANKING COMPLIANCE
Introduction
The Compliance function oversees and monitors a
Bank’s compliance with laws, regulations, policies and
controls.
But….
Compliance is the responsibility of all employees!
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FINANCIAL SECTOR TALENT ENRICHMENT PROGRAMME
BANKING COMPLIANCE
Definition*
Compliance risk is the risk of legal or regulatory
sanctions, material financial loss, or loss to
reputation a bank may suffer as a result of its
1/5/2014 Banking & Insurance Industry Expectations
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failure to comply with laws, regulations, rules,related self-regulatory organization standards
and codes of conduct applicable to its banking
activities
* Per Bank for International Settlement
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FINANCIAL SECTOR TALENT ENRICHMENT PROGRAMME
BANKING COMPLIANCE
Strategy
•To enable the measurement of compliance risks as well
as to ensure effective management
•Based on identified risks, compliance tools are
developed and implemented
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FINANCIAL SECTOR TALENT ENRICHMENT PROGRAMME
1/5/2014 Banking & Insurance Industry Expectations
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BANKING COMPLIANCE
How is the Strategy attained?
•Ensuring compliance with the requisite
standards
•Identify, assess, resolve and escalate
compliance breaches and failures
•Jealously guard the bank against reputational
risk and manage the risk
•Entrenching a sound compliance culture
across the bank
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FINANCIAL SECTOR TALENT ENRICHMENT PROGRAMME
BANKING COMPLIANCE
Objective
To provide the reasonable assurance to management
that all activities controls in the bank are functioning
effectively and efficiently
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FINANCIAL SECTOR TALENT ENRICHMENT PROGRAMME
BANKING COMPLIANCE
Why the need for Compliance?
•To safeguard the Bank against financial losses and
loss of reputation
•Helps meet expectations and demands of
shareholders, customers as well to withstand
regulatory scrutiny
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FINANCIAL SECTOR TALENT ENRICHMENT PROGRAMME
1/5/2014 Banking & Insurance Industry Expectations
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BANKING COMPLIANCE
Background
•In tandem with international best banking practices
•Aligned to the principles as introduced with the Bank
for International Settlement (paper titled ‘Compliance
and the Compliance Function in Banks ‘- 2005)
•Recent trends per compliance breaches that have been
increasing both in frequency and magnitude
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FINANCIAL SECTOR TALENT ENRICHMENT PROGRAMME
BANKING COMPLIANCE
The Compliance Framework
To establish and articulate:
•The roles and responsibilities of designated
employees
•The authority levels, governance structure and control
processes to manage compliance activities
1/5/2014 Banking & Insurance Industry Expectations
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FINANCIAL SECTOR TALENT ENRICHMENT PROGRAMME
BANKING COMPLIANCE
The Compliance Framework
•The depth and scope of compliance activities in
the bank
•A robust Compliance policy and policy regime
•The application and implementation of compliance
enablers, tools and processes
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FINANCIAL SECTOR TALENT ENRICHMENT PROGRAMME
BANKING COMPLIANCE
1/5/2014 Banking & Insurance Industry Expectations
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Compliance & Governance
Articulates similar values and principles as proclaimed in
the Code of Ethics / Code of Conduct as well as
incorporating the key elements include honesty, trust and
integrity, openness, performance orientation,
responsibility and accountability, mutual respect, and
commitment to the organization.
[Refer also to training session on ‘Corporate
Governance]
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FINANCIAL SECTOR TALENT ENRICHMENT PROGRAMME
BANKING COMPLIANCE
Compliance & Governance
The Compliance function will also oversee key functions
within its structure that are similarly aligned with the
certain functional lines of a bank e.g. Credit, Treasury,
Operations, etc
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FINANCIAL SECTOR TALENT ENRICHMENT PROGRAMME
BANKING COMPLIANCE
Interdependencies
Due to different responsibility levels operating around a
bank in the realm of risks and controls,
interdependencies exit with the following:
•Risk Management
•Legal & Regulatory
•Audit
•All business and support units
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FINANCIAL SECTOR TALENT ENRICHMENT PROGRAMME
BANKING COMPLIANCE
Some Compliance Tools & Enablers
1/5/2014 Banking & Insurance Industry Expectations
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•Procedural and process reviews
•On-site inspection and surveillance
•Self Assessment Process (risk based)
•Training
•Incident Management Reporting
•Credit reviews (post approval)
•Credit monitoring
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FINANCIAL SECTOR TALENT ENRICHMENT PROGRAMME
BANKING COMPLIANCE
Some Compliance Tools & Enablers
•Treasury Limits Monitoring
•Regulatory Monitoring
•Audit reports
•Ongoing Compliance monitoring and checking
1/5/2014 Banking & Insurance Industry Expectations
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FINANCIAL SECTOR TALENT ENRICHMENT PROGRAMME
BANKING COMPLIANCE
Reporting & Escalation Process
All functional units – business or support – that are entrusted
with compliance responsibilities are to collaborate and
coordinate with the Compliance function to escalate issues and
incidents at the appropriate level and forum. The aim is to enable
timely and effective resolution.
Reporting/escalations may, where appropriate, be made to:
•Board of Directors
•Senior Management
•Regulatory / Enforcement Authorities
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FINANCIAL SECTOR TALENT ENRICHMENT PROGRAMME
BANKING COMPLIANCE
Roles & Responsibilities: Compliance Officer
•To identify and manage, with his team, the bank’s
various compliance risks
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•To manage and oversee the reporting and escalation
process
•Liaison person with authorities and enforcement
agencies
•Developing appropriate Compliance policies and
procedures
•To assist in Compliance training
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FINANCIAL SECTOR TALENT ENRICHMENT PROGRAMME
Thank you