The Prevention of Money Laundering and Funding of Terrorism Regulations (PMLFTRs) require that, depending on the size and nature of the business, subject persons give due consideration to the implementation of an independent audit function.
The primary purpose of an independent test is to evaluate the adequacy of internal measures, policies, procedures and controls of an operation. An independent party acts as a professional skeptic by testing an operation’s AML/CFT framework against the current laws and regulations as a means to bring to light any shortcomings and point out improvement areas.
Whilst the role of an independent audit is not to prevent, detect or investigate money laundering and financial crime risks, its activities make a significant contribution to the management of said risks. The subsequent independent audit reports include logs of breaches and exception incidences, creating an effective tool for assessing compliance and money laundering risks within an organization.
Such independent test of a subject person’s AML/CFT framework goes beyond satisfying the obligation under the PMLFTRs, as it provides the following additional benefits:
Whilst the AML/CFT framework of an operation is being tested, the Money Laundering Reporting Officer (MLRO) and compliance team would benefit from the presence of a knowledgeable advisor. Such an advisor can aid in understanding the increasingly complex regulatory regimes and providing practical ways to keep the operation abreast of the constantly changing regulatory standards.
When a task is examined by people who are external to the operation, it brings an added degree of objectivity and impartiality to the process. This mitigates the potential risk that internal staff become too familiar with the operation’s systems, which are potentially biased and thus not fully able to properly identify and address errors.
Periodic independent testing can help protect and further build the operation’s reputation. The careful management and improvements to the AML/CFT frameworks help mitigate and prevent situations that may deteriorate the operation’s reputation. Additionally, stakeholders are kept safe in the knowledge that the operation in question is dedicated to keeping itself in check and further improving the quality of its systems.
Our Financial Crime Compliance Team is equipped to assist you in testing your AML/CFT framework. If you would like more information, feel free to get in touch with us.