Management of the on-site examination

Audit reports covering AML/CFt issues can yield important information for the examination. It is also important to review the correspondence between the institution’s management and its auditors, especially to determine if any remedial action has been taken to correct deficiencies found by the auditor.

Reviewing this information up front will facilitate the interviews with staff of the institution and the examination of systems and files. the information can provide a preliminary view of the AML/CFt compliance systems and processes in place. Reviewing the policies is very important to determine, for instance, if there are systems for enhanced due diligence and monitoring when higher risks are involved or if simplified due diligence can be applied for lower risks. Assessing the effectiveness of the compliance processes is part of the actual on-site inspection, where examiners can test and verify the implementation of the processes. the evaluation of off-site and other information will assist the examination team to determine more precisely the specific objectives and scope of inspections and, in particular, to ascertain areas that require more intense review. the preliminary assessment of this information will also allow the supervisors to amend the duration of the inspection, the staff resources required, and the assignment of examiner responsibilities and tasks.

MANAGEMENT OF THE ON-SITE EXAMINATION

supervisory authorities should establish on-site AML/CFt examination procedures to ensure effective and efficient processes. the examination procedures should reflect the risk, size, complexity, and systemic importance of a sector. the process should be linked closely to off-site AML/CFt processes. of course, examination planning should remain flexible to accommodate unplanned cases.

Detailed inspection procedures should be documented in, for example, an AML/CFt examination manual. the manual should include processes for the following:

● Developing the annual calendar of inspections;

● Undertaking unplanned inspections triggered by risk events or new information;

● Planning the examination of individual financial institutions and financial groups;

● Conducting on-site examinations;

● Writing the report; and

● taking follow-up actions after the examination.

the on-site examination generally includes a kick-off meeting with management as well as an exit meeting. the kick-off meeting is held to inform the institution’s managers of the objectives and process of the inspection. the exit meeting provides management with the preliminary key findings. During the exit meeting, management should preferably already have committed to making improvements or to taking corrective actions where needed. to improve the accuracy of the findings, the examination team should be receptive to any reasonable clarifications and corrections of fact that management offers. During the exit meeting, timelines with respect to the examination report and possibilities for the institution to provide comments should also be discussed. the duties and responsibilities of the examination team should be clearly assigned. the examination team leader carries the primary responsibility for planning and overseeing inspections,

including coordinating report writing and follow-up action. the team leader is the key person to liaise with other departments of the supervisor, the institution’s management and compliance officer, internal or external auditors, the FIU, and other relevant authorities (for instance, law enforcement or the public prosecutor in case of suspicions that the institution or its managers and staff are involved in illicit activities). In particular, the team leader has the following responsibilities:

● Examination planning, organization, and implementation. the team leader, with input from the inspection team, is responsible for planning and scoping the examination (see box 5.1 for details on inspection planning), setting the objectives, identifying and assigning inspection activities and tasks, establishing the list of information to be requested, and ensuring that the inspection meets the agreed-on objectives.

● Assignment of responsibilities of the examination team. the team leader (in consultation with the management of the AML/CFt supervision unit) forms the examination team in accordance with the expertise and skills necessary to carry out the inspection and assigns tasks and responsibilities to team members accordingly. Meetings should be held with the team throughout the planning process to ensure that each team member understands the objectives of the inspection as well as his or her individual tasks and responsibilities.

● Examination plan. the team leader makes changes to the scope of an inspection or changes to the examination plan in light of new information arising during an inspection.

● Guidance for the examination team. the team leader oversees the conduct of inspections, provides guidance and support to the team, and coordinates the process of requesting and receiving information.

● Kick-off and exit meetings. the team leader organizes and leads the kick-off and exit meetings with management of the institution to discuss the objective and process of the inspection and consequently the preliminary findings, conclusions, and recommendations of the examination.

● Report of examination. the team leader organizes and overseas preparation of the examination report and is the key contact person with whom the institution’s management and compliance officer and the supervisory authority can discuss examination findings, recommendations, enforcement actions, and follow-up processes.

BOX 5.1 Planning Inspections and Associated Resources in Line with the Supervisory Strategy

the inspection plan is an important part of implementing a supervisory strategy for inspections. the inspection plan should list the following: ● The entities that will be subject to planned anti-money-laundering and combating the financing of terrorism (AML/CFT) inspections or reviews during a specified period (that is, inspections to be conducted over one year or several years), which may include follow-up on previous inspections; ● The type and scope of those inspections or reviews, taking into account the level of risk associated with each entity;