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  • Writer's pictureAnna Stylianou

The elements of an effective AML program – free checklist provided

Updated: Oct 13, 2023

This article appears as the "Discussion of the month" topic in AML News and Updates Newsletter - June 2023 edition which can be found here.


(The AML Compliance Program should be created in accordance with each country’s national law and the regulator’s guidance. In this article we will examine some best practices employed by industry professionals)


Anti-Money Laundering (AML) Compliance refers to the set of regulations and practices aimed at preventing, detecting, and reporting illegal activities related to money laundering and terrorist financing (ML/TF). These rules are necessary to prevent businesses from becoming involved in ML/TF.


👉 Risk mitigation: It helps to mitigate risks associated with money laundering and terrorist financing, which could harm the business's reputation and lead to legal and financial consequences.


👉 Compliance with Regulations: AML Compliance is a regulatory requirement in most countries, and non-compliance can result in severe penalties and fines. Moreover, businesses that fail to comply with AML regulations may find it difficult to secure funding, insurance, or even maintain banking relationships.


👉 Protection of reputation: Implementing an effective AML Compliance program can help businesses detect and prevent fraudulent activities within their organizations, improving the overall integrity of their operations and the reputation of a company.


Establishing an AML Compliance Program

The AML Compliance program is comprised of the following elements:


✔️ Conducting risk assessments


✔️ Appointment of an AML Compliance Officer or Team


✔️ Developing policies and procedures


✔️ Implementing internal controls


✔️ Conducting regular training for the employees.


✔️ Appointing an independent audit function


Conducting a Risk Assessment on a business level

Conducting a risk assessment is a critical step in developing an effective AML Compliance program. The objective of a risk assessment is to identify the specific risks and vulnerabilities that the business may face related to ML/TF. Below are some points to consider when conducting a risk assessment:


  1. Identify the risks: The first step is to identify the specific risks that the business may face. This must consider the ML/TF risks associated with the types of products or services offered, what type of clients a company will onboard, the geographic locations where the business operates, and the payment methods used.

  2. Assess the likelihood and impact of each risk: Once the risks have been identified, it's important to assess the likelihood and impact of each risk. This will help prioritize the risks and determine the appropriate mitigation measures.

  3. Determine the controls in place: It's also important to determine the controls that are currently in place to mitigate each risk. This may include customer due diligence measures, transaction monitoring systems, other IT systems, specific measures for high risk customers and other controls.

  4. Identify gaps and weaknesses: Based on the risk assessment, it's important to identify any gaps or weaknesses in the current controls. This will help determine the additional measures needed to mitigate all risks effectively.

  5. Develop an action plan: Based on the risk assessment findings, develop an action plan to address any gaps or weaknesses identified. This may include developing new policies and procedures, enhancing existing controls, and implementing new technological solutions.

  6. Determine the residual risk: Identify the risk that remains after the controls are implemented on the inherent risks. The residual risk must be equal or less than the risk appetite of an entity.

  7. Obtain a holistic view: It is important for an entity to obtain an overall understanding of the risks associated and ensure that the measures taken mitigate those risks effectively on all levels of the busines

The AML Compliance department

The purpose of the AML department is to oversee the implementation and maintenance of the AML program. The team members must have the necessary skills, experience and knowledge to manage the AML program effectively. A regulated entity must consider the following when creating an AML team:


📌 Determining the size of the team taking into consideration the size and complexity of the business


📌 Identify the roles and responsibilities – clear roles and responsibilities to ensure that all areas of the AML program are covered.


📌 Ensure the AML Officer (head of the department) is a senior manager and has the appropriate authority to take decisions


📌 Provide adequate resources such as technological tools and training to enable the compliance staff to perform their duties.


📌 Establish effective communication channels with other departments of the entity.


Developing Policies and Procedures

Developing clear and comprehensive policies and procedures is a critical component of an effective AML Compliance program. Policies and procedures provide a framework for employees to follow and ensure that the business is complying with AML regulations. Below are some points to consider when developing policies and procedures:

  1. Conduct customer risk assessments: Every regulated entity must conduct risk assessment for every business relationship to understand the risks associated with each business relationship. As a result, a regulated entity must specify the methodology to be used, the questions to ask to obtain a holistic view of every client and the associated ML/TF risks.

  2. Develop specific policies: Develop policies and procedures on how to perform:


☑️ Customer identification and verification procedures


☑️ Customer Due Diligence (CDD)


☑️ Enhanced Due Diligence (EDD)


☑️ Transaction Monitoring,


☑️ Customer Reviews,


☑️ Suspicious activity identification and reporting and


☑️ Record keeping procedures


Policies should be clear and concise, written in plain language that is easy for employees to understand.


Implementing other internal controls

In addition to the development of policies and procedures, regulated entities may consider the controls that include both manual and automated measures.


Manual measures include among others:


🏴 Segregation of duties


🏴 Independent review of customersscore


🏴 Investigation of alerts


🏴 Compliance testing


Automated controls include among others:


🔎 ID verification tools


🔎 KYB tools


🔎 Transaction monitoring


🔎 Customer screening


🔎 Risk assessments and scoring


🔎 Regulatory reporting


🔎 Cybersecurity tools


Every regulated entity must employ systems that adequately mitigate their own ML/TF risks.


Conducting regular and ongoing training for the employees

Employee training is a vital component for successfully implementing an anti-money laundering (AML) program within regulated entities. Neglecting to provide adequate training can result in the entity being held liable and subjected to penalties. Some best practices for employees training include:


  • Ensure employees understand their personal obligations and liability in case of non-compliance with AML regulatory requirements.

  • Document the AML training program.

  • Develop tailored education and training programs for each department. Consider both in-house and external courses.

  • Incorporate the requirements of the national AML law and the supervisory authority’s directive.

  • Consider the internal policies and procedures of the entity and decide what points you want to emphasize.

  • Use case studies, and real-life examples to enhance learning.

  • Consider evaluating the knowledge of employees with the use of tests and other assessments.

  • Keep records of the training: Subject, dates, names and areas of those participating and other information to demonstrate compliance with regulations.

  • Think about how to keep employees updated on regulatory changes.

  • Provide specialized training for the Board of Directors.

Appointing an independent audit function

According to the size and nature of the activities of a regulated entity, an independent audit function must be established if required by the supervisory authority. The audit function must perform the following duties:


🕵️ Test the internal policies, controls and procedures of the regulated entity.


🕵️ Provide his/his recommendations for improvement.


🕵️ Report the findings in a report to the Board of Directors.


It is crucial to ensure that the auditor possesses the necessary qualifications and expertise to ensure the findings of the internal auditor are reliable.


Why implementing an AML program is important

In conclusion, the establishment and maintenance of an AML program, coupled with comprehensive documentation of AML measures and controls, are crucial for regulated entities.


✅ By implementing an effective AML program, these entities not only ensure compliance with legal and regulatory requirements but also protect their reputation among customers, business partners, and stakeholders.


📃 Demonstrating a commitment to combating financial crimes and adhering to ethical practices enhances trust and confidence in the market, attracting and maintaining long-term relationships.


🌍 Ultimately, a well-implemented AML program reinforces the integrity and stability of the regulated entity, establishing it as a responsible and trustworthy participant in the global financial landscape.


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