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Associations Support Risk-Based Approach for Anti-Money Laundering Standards
Washington, DC, September 9, 2002 - The Institute, the Securities Industry Association, and the Futures Industry Association (collectively, the associations), strongly support a risk-based approach to anti-money laundering regulation that will allow financial institutions to focus their resources on those customers, accounts, and transactions that are most vulnerable to money laundering and terrorist financing, according to a recent joint comment letter.
The associations submitted comments to the Financial Action Task Force on Money Laundering (FATF) regarding its “Forty Recommendations”—a basic framework for developing international standards that will prevent money laundering and terrorist financing, which were initially developed in 1990. All FATF member countries, including the U.S. are encouraged to adopt them.
In general, the associations’ letter endorses the risk-based approach to anti-money laundering regulation taken by U.S. regulators in the various rules proposed under the USA PATRIOT Act. The associations strongly believe that a financial institution can implement an effective anti-money laundering program only by conducting an assessment of the varying risks associated with the different types of businesses, clients, accounts, and transactions it handles.
The associations are critical of an FATF recommendation that all or most non-face-to-face scenarios should be treated with heightened due diligence. The associations note that this recommendation, without a recognition of the historic non-face-to-face methods of doing business in the securities-related industries (including the mutual fund industry), is likely to have grave consequences for securities-related firms and their customers. Therefore, the associations recommend that any measures to address the risks that arise in non-face-to-face contexts should be premised on a risk-based approach and left entirely to the discretion of the member country, which will be familiar with the practices of its financial services industries.
The associations comment on several issues other raised by the Forty Recommendations, including:
- identification and verification responsibilities;
- reliance on intermediaries to perform identification and verification obligations;
- verification issues with respect to collective investment vehicles, such as mutual funds;
- the development of a list of politically exposed persons, including those who present heightened risks for financial institutions; and
- financial institutions’ suspicious transaction reporting obligations.