examples of off-site AML/CFt supervision systems and Processes in some Jurisdictions

these types of outreach are useful in the following:

● outlining the legal and regulatory framework across a sector;

● Clarifying the interpretation of the requirements of the AML/CFt laws and regulations and explaining how to implement them in practice;

● sensitizing institutions in assessing and mitigating ML/tF risks and in designing and implementing AML/CFt controls; and

● Raising awareness of risks and new legal requirements related to AML/CFt.

It is also a good practice to publish the main characteristics of the supervisory framework, including the design and method of off-site and on-site supervision and the method of implementation of enforcement actions.

EXAMPLES OF OFF-SITE AML/CFT SUPERVISION SYSTEMS AND PROCESSES IN SOME JURISDICTIONS

Box 4.3 provides examples of off-site AML/CFt supervisory regimes from several jurisdictions.

BOX 4.3 Examples of Off-Site Anti-Money-Laundering and Combating the Financing of Terrorism (AML/CFT) Supervisory Frameworks

Colombia. the superintendencia Financiera de Colombia (sFC) has incorporated AML/ CFt supervision within its broader integrated supervision framework, which addresses both prudential and financial risks and AML/CFt risks (IMF and GFILAt 2018). the AML/CFt component of the framework is based largely on the risk management system for money laundering and terrorism financing (ML/tF), sARLAFt, which is the basic risk-based AML/ CFt regulation issued to supervised entities. the risk-based framework does not specifically address terrorism financing risk, and the results of the off-site risk analysis are used for planning on-site inspections. the current risk-profiling model is based on an assessment of inherent risks associated with clients (individuals and legal entities), products and services (as reported by financial institutions that have been scheduled for on-site inspections), economic sectors, and the geographic location of customers. In addition, the sFC assesses controls and compliance through a questionnaire completed by institutions scheduled for inspections. on-site inspections verify the adequacy of these controls. the questionnaire covers, among

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BOX 4.3 (continued)

other issues, risk management, organizational structure, board and management oversight, audits, resources, budgets and training, red flags, and identification and reporting of suspicious activity.

Malaysia. each supervisor has developed a risk analysis tool to assess the inherent risk of each sector using a wide range of information (FAtF and APG 2014). this information includes the findings of the national risk assessment, sector-by-sector threat and vulnerability assessments, and periodically produced lists of strategic products at risk. the results of the risk analysis feed into the supervisory authorities’ ongoing risk assessment process within each sector. the overall ML/tF risk serves as a key input in determining the intensity of supervision.

Bank negara Malaysia (BnM) has adopted a supervisory risk-based framework (suRF) to assess the safety and soundness of licensed financial institutions. this framework enables BnM to evaluate an institution’s risk profile, quality of risk management processes, governance, compliance, and financial condition. It allows BnM to focus attention and efforts on areas or activities of higher risks and to assess ML/tF risks consistently across various entities, including risks arising from all activities or entities within a financial group (subsidiaries and branches), both domestic and foreign.

BnM uses a dedicated AML/CFt supervisory framework to complement suRF, which provides greater detail in the assessment of ML/tF risks. the intensity and frequency of the ML/tF assessment are based on several factors, such as the size and complexity of the institution, type of customers, products, geographic exposure, and channels of delivery.

In addition, BnM supervisors conduct thematic assessments of ML/tF issues, which complement the ongoing supervisory reviews conducted under suRF. thematic assessments are carried out simultaneously across an industry and are focused on a specific area.

Macao SAR, China. With respect to the banking sector, Autoridade Monetaria de Macau (AMCM) has devised a risk-rating mechanism for banks by identifying potential ML/tF threats and assessing the quality of AML/CFt prevention (APG 2017). to gain insight into these threats, surveys have been conducted to obtain information on the scope of business and perceived risks within banks. the annual sector survey also collects comprehensive information, including the nature and scale of high-risk transactions, exposure to AML/CFt–deficient jurisdictions, customer structures, products, and delivery channels. the risk profiles of individual banks are updated constantly on completion of each on-site inspection or other major triggers. Under this risk-based approach, lower-risk institutions within the banking, other-financial-institution, and insurance sectors are monitored mainly through off-site surveillance, supplemented by less frequent inspections and thematic reviews. the AMCM rates banks using a five-level scoring tool to assist with monitoring. the tool rates banks in five categories by identifying their inherent ML/tF threats and assessing the quality of AML/CFt prevention, which includes risk management, preventive measures, ongoing due diligence, and CFt.