How to ensure compliance with the latest AML regulations

SEC fines Merrill Lynch $6 million for SARS reporting failures.

Amanda Khatri

Editorial Manager

How to ensure compliance with the latest AML regulations

It is no secret that regulators are tightening their controls to prevent money laundering and terrorist financing. Thus, complying with the most up-to-date anti-money laundering (AML) regulations is paramount to avoid eye-watering penalties and reputational damage that can harm company profits.

More than two-thirds of regulated businesses in financial services are worried about AML breaches. In 2022, £6.4 billion was laundered using cryptocurrency. Since 2016, £6.7 billion in suspicious funds have been invested in the UK property market. By adopting a proactive approach to AML compliance, firms can implement more robust measures to detect and report suspicious transactions and keep up to date with changing regulations.

SEC fines Merrill Lynch $6 million for SARS reporting failures

On 11 July 2023, the US Securities and Exchange Commission (SEC) charged Merrill Lynch, Pierce, Fenner & Smith Incorporated and its parent company BAC North America Holding Co. (BACNAH) with failing to file hundreds of Suspicious Activity Reports (SARS) between 2009 and 2019. Merrills has agreed to pay a $6 million fine to the SEC as well as $6 million to the Financial Industry Regulatory Authority (FINRA).

The SEC found that BACNAH was responsible for creating and implementing Merrill Lynch’s policies and procedures for SARs. However, BACNAH erroneously implemented a threshold of $25,000 instead of the required $5,000. This meant they did not report certain transactions that seemed suspicious or involved someone trying to use Merrill Lynch for illegal activities. Consequently, Merrill Lynch failed to file hundreds of SARs that were necessary.

Katharine E. Zoladz, Co-Acting Regional Director of the Los Angeles Regional Office, stated that broker-dealers “have a critical obligation to report suspicious activity in their accounts” and that Merrill et al “failed to comply with one of the most basic requirements for a SAR programme.”

Stay compliant with AML rules, regulations and laws

This incident sheds light on the importance of compliance and the need for effective solutions to mitigate risks in the financial industry. It is essential for firms to combat new money laundering methods and compliance gaps by using technology to keep abreast of new changes.

A recent survey of 500 compliance decision-makers in financial services found that “one in five financial firms are very worried about the robustness of their compliance procedures.” To ensure operational readiness to withstand money laundering, here are a few tips and tricks for peace of mind:

1. Implement robust governance frameworks to mitigate money laundering and terrorist financing risks

Align regulatory requirements with business taxonomies to ensure that compliant policies and controls are in place and consistent across the firm, including full engagement and awareness from senior management and the board.

2. Incorporate a risk-based approach to calculate AML risks

This enables organisations to prioritise resources and efforts based on the level of risk, allowing for more efficiency, scalability and flexibility — and best of all, proactive risk mitigation — so AML gaps are identified early.

3. Ensure compliance with all AML regulations that apply to your business

By using AI-driven regulatory technology such as CUBE, firms can have complete visibility of all relevant regulations associated with money laundering and terrorist financing. CUBE helps to filter out all the noise, and alerts compliance, legal and risk professionals to the laws, rules and regulations that matter and any changes to them that may occur.

4. Have a good enough understanding of compliance requirements in different jurisdictions

Identify which regulations across borders affect your firm and apply these to policies and controls. CUBE takes the stress out of this manual process by automating compliance processes in every single jurisdiction and translating every language back to English.

5. Implement ongoing monitoring to combat risk

Compliance is not just a box-ticking exercise, it is ongoing, thus, efforts should be continuous in combating money laundering. CUBE’s horizon scanning capabilities allows your business to quickly identify new, updated and upcoming regulations. Giving you enough time to understand who is responsible for what and ensure top-down implementation of a compliant culture.

6. Ensure full and transparent audit trails are available as evidence for compliance if regulators come knocking

This enables firms to prove that they are managing risks in line with current AML requirements. Regulatory change management software, like CUBE, allows firms to prove decision-making and actions in an audit trail for record-keeping requirements.

CUBE comment

The recent charges against Merrill Lynch highlight the critical importance of compliance in the financial industry. Failing to file SARS and inadequately address AML regulations can lead to substantial penalties, reputational damage, and legal consequences for firms.

By leveraging regulatory change management software, businesses can reduce potential gaps in their compliance processes. Consequently, financial institutions can proactively adapt to regulatory changes, maintain accurate reporting, and protect themselves from potential breaches, ensuring a safer and more compliant environment within the industry.

To ensure your firm complies with AML regulations, speak to CUBE.

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