other examination Procedures

has screening procedures to ensure high standards and to avoid any conflicts of interest. the inspection with respect to processes should focus on the following:

● screening procedures for employees, including consultants, and more stringent screening for employees who will be working in high-risk areas;

● A policy prohibiting employees from managing their own accounts or accounts on behalf of related parties and additional controls on the ability of employees to access their own accounts; and

● A policy on penalties for violations of internal rules and legislation by employees.

OTHER EXAMINATION PROCEDURES

In addition to the examination procedures related to the general AML/CFt compliance framework described above, specific AML/CFt topics may need to be evaluated in some cases. For instance, the supervisor may want to assess whether the institution has adequately assessed specific inherent risks related to geography or delivery channels. specific examination procedures will also be relevant for certain high-risk customers, such as correspondent relationships.

Geographic Risk

examiners need to ascertain whether the institution’s AML/CFt framework takes adequate account of geographic risk exposure, both domestic and cross-border, with respect to its client base and branch and subsidiary network. such an assessment is important for determining whether the institution adequately identifies and assesses the risks when establishing or acquiring foreign branches or subsidiaries. the examination of geographic risk exposure should undertake the following:

● Assess whether the institution’s policy and procedures take into account FAtF-listed jurisdictions and United nations–sanctioned jurisdictions as well as other reliable sources, such as the national risk assessment;

● Determine whether the institution’s geographic risk assessment captures high-risk domestic regions;

● Assess whether the institution assesses the jurisdiction’s risks with respect to its branches and subsidiaries;

● Assess whether the institution takes geographic risk into account when assessing or reviewing business relationships and monitoring transactions; and

● Assess whether enhanced customer due diligence measures are implemented for business relationships in higher-risk jurisdictions.

Delivery Channels

ML/tF practices can proliferate amid digital financial platforms that facilitate anonymity in transactions, jeopardizing the overall integrity of the financial system. Fintech activities carry important risks

to integrity, such as identity theft and online extortion (for example, ransomware attacks). the use of crypto assets, which are increasingly popular in emerging markets, raises important concerns. several high-profile cases of criminal activities have surfaced in recent years,3 calling for the authorities’ attention and prompting the FAtF to issue a new recommendation specifically for virtual asset services providers.4

In this context, the role of AML/CFt supervisors is essential. examiners need to ascertain whether the institution’s AML/CFt framework takes adequate account of the high inherent risk of certain delivery channels, including the risks associated with new technologies for delivering services to customers. the examination of delivery channels should undertake the following:

● Determine that the ML/tF risk assessment addresses risks from non-face-to-face situations where there are no specific safeguards and that an ML/tF risk assessment is conducted before new technologies for delivering services are introduced;

● Determine that the institution assesses the risks of the use of new technologies and platforms to initiate business relationships or conduct transactions, particularly when there is non-face-to-face contact without specific safeguards;

● Assess whether compliance and audit have a role in these processes prior to introducing new technologies; and

● Assess whether the institution takes delivery channel risks into account when assessing or reviewing business relationships, including enhanced customer due diligence measures for business relationships when there is no face-to-face contact without specific safeguards.

Correspondent Relationships

Large international banks typically act as correspondents for thousands of other banks around the world. these respondent banks may receive a wide range of services, including cash management, international funds transfers, payable-through accounts, and foreign exchange services. With respect to the role assigned to the supervisor in relation to correspondent relationships, BCP 29, essential Criterion 6, stipulates that, in addition to normal due diligence, banks should have policies and processes regarding correspondent banking. such bank policies and processes should include (a) gathering sufficient information about their respondent banks to understand the nature of their business and customer base and how they are supervised; and (b) having rules against establishing or continuing correspondent relationships with banks that do not have adequate controls against criminal activities, are not supervised effectively by the relevant authorities, or are considered to be shell banks. supervisors are expected to verify that this is the case in practice.

In recent years, large international banks have terminated, restricted, or threatened to terminate correspondent relationships with respondent banks across the globe. this loss of correspondent relationships—commonly known as de-risking—seriously damages the provision of domestic and cross-border payments.

In line with FAtF Recommendation 13, a jurisdiction’s AML/CFt legislation needs to have specific customer due diligence obligations with respect to correspondent relationships. even though these requirements are for the correspondent banks, not the respondent banks, supervisors in jurisdictions with respondent banks whose accounts are or may be terminated or restricted can take measures to strengthen the AML/CFt supervisory regime to meet the FAtF standards and address the national and sectoral ML/tF risks. the following are some of these measures: