What are the top 5 mistakes that must be avoided while building AML compliance framework?
As the UAE is putting all its efforts to promote a transparent economy, all the companies in UAE are required to build a strong AML compliance framework. All the financial institutions and DNFBPs are strictly instructed to comply with the AML programme, to prevent the risks of financial terrorism, money laundering and financial fraud etc.
The UAE government has started to track down those entities who fail to abide by the AML-CFT laws, and such entities will have to pay a hefty amount as a penalty.
Even though there are many stringent, companies still end up paying huge penalties to the government authorities due to violations and deficiencies occurring in their compliance programme. Even after the efforts of the AML compliance officers, the companies suffer due to poor internal control and improper compliance.
Below are some of the common mistakes made by the companies while performing AML compliance that must be avoided:
Underestimating AML Compliance Officer’s Role In The Company:
The appointment of an AML compliance officer is one of the mandatory requirements. Those entities who fail to appoint such officers will be liable to pay an administrative penalty of AED 50,000. Most companies in UAE don’t give much priority to AML compliance officers and they don’t provide the required authority and resources to the officers, under this circumstance the compliance have to fight for getting the resources and the authority to perform their responsibilities. Compliance officers are considered as lower-level officers and they are ignored by other department heads and managers.
This is the first common mistake that all companies make. All the companies must provide adequate independence and authority to the compliance officers so that they can perform their duties and ensure that the company is adhering to the AML programme and identify all the money laundering risks to which the companies are exposed.
Absence of Internal Communication:
Internal communication is an important element for the compliance programme, continuous communication and proper coordination between all the departments of a company will help to deal with all kinds of business threats, also it will help to tackle the trifling problems before it turns into a big calamity.
If the departments and the managers are not open to communication then it will affect the whole company as most individuals will not know about the strategies adopted for AML compliance and the updates brought in the AML compliance programme. Moreover, the compliance officer will have to put extra effort to communicate the processes and the strategies to each department, which is a more time-consuming task and out of their scope.
If everyone maintains proper communication with their department heads and their subordinates then everyone will stay updated regarding the updates of compliance programmes. Through proper internal communication, everyone will understand the value of their contribution towards the compliance programme and all departments will stay alert to the latest compliance needs and other money laundering risks.
Dependence on Bad Quality Data:
Depending on the bad quality data will probably affect the AML compliance programme which will also increase the probability of money laundering and other financial risks. Bad quality data refers to the data which has many flaws in it, which may be misleading and it may provide inaccurate information to the organization. Every organization is exposed to the risk of bad quality data, but if it fails to identify such data at an early stage then it may result in an ineffective AML monitoring process.
The AML compliance programme will be effective only if the organization has complete and accurate information about the entities who are involved in the transactions and about those who are benefitted from such exchange. It will result in a smooth monitoring process and detection of fraudulent activities at an early stage.
Using Obsolete Transaction Monitoring Systems:
Most business institutions and other companies utilize outdated transaction monitoring systems which makes it hard to identify money laundering threats. Traditional transaction monitoring is based on evaluating the customer activities against some set of rules, which results in the investigation of flagged outliers by the compliance team.
It will increase the cost of the compliance programme. Moreover, the traditional transaction monitoring system won’t be able to track the new type of money laundering activities. So, it is always the best course to install a modern transaction monitoring system that can track all the threats at an early stage.
Not Able to Adapt to Changing Regulatory Landscape:
As stated in the beginning about the UAE efforts to build a transparent economy, all the business entities will have to constantly monitor the changes brought in the industry standards, national rules and regulations. Every year the AML compliance rules and regulations are strengthened and the business entities are required to meet the new regulatory requirements. But most of the firms are not able to adapt to the new changes as they are unaware of such updates and are not ready for such change, this is caused as a result of a lack of accurate monitoring of the evolving regulatory landscapes.
A good example of changes brought in the regulatory framework is ESR and UBO requirements which were introduced late to each departments transparency procedures. Non-compliance with the requirement will give birth to hefty fines and penalties and it will damage the good image of a firm. To avoid such situations the firm must train the compliance team to keep the heads up and monitor the changes brought in the regulatory framework and adopt the necessary steps.
Ensure AML Compliance in UAE With the Help of CDA?
It is always better to solve a problem even before it happens but most firms fail to do so, due to a lack of proper assistance and expertise. CDA is one of the leading accounting and auditing firms in Dubai that provides professional services to its clientele. CDA with its experienced team always looks forward to protecting its clientele from all the possible abnormalities regarding any kind of compliance issues. CDA is always ready to provide its customers with all the required assistance regarding accounting and auditing requirements as well as the AML compliance programmes. For further queries feel free to contact CDA.