This lesson provides a comprehensive overview of the AML/CFT framework, its key components, and the global standards governing it.

5.1 The Global Regulatory Framework
The global standards for AML/CFT are set by the Financial Action Task Force (FATF) through its 40 Recommendations. These provide a comprehensive and consistent framework of measures countries should implement to combat money laundering, terrorist financing, and the financing of proliferation of weapons of mass destruction. The FATF also issues guidance for effective supervision and enforcement by AML/CFT supervisors of the financial sector, describing the features of effective supervision and the ability to take effective, dissuasive, and proportionate enforcement actions.

5.2 The AML/CFT Program
A robust AML/CFT program is built on five key pillars, which include:

  • Customer Identification Program (CIP) and Customer Due Diligence (CDD): The “Know Your Customer” (KYC) process, including identifying the Ultimate Beneficial Owner (UBO) of legal entities.

  • Transaction Monitoring: Monitoring customer transactions for suspicious activity.

  • Suspicious Activity Reporting (SAR): Reporting suspicious transactions to the Financial Intelligence Unit.

  • Sanctions Screening: Continuously screening customers and transactions against sanctions lists.

  • Training and Record Keeping: Providing regular staff training and maintaining meticulous records.

5.3 Major Regulatory Frameworks

  • United States: The Bank Secrecy Act (BSA) and the USA PATRIOT Act are the foundational pieces of legislation. OFAC administers and enforces economic sanctions.

  • European Union: The Anti-Money Laundering Directives (AMLD) provide a harmonised framework for member states. The EU’s approach is covered in foundational compliance courses alongside the FATF standards.

  • UK: Has its own sanctions regime distinct from the EU, administered by OFSI (Office of Financial Sanctions Implementation).

5.4 The Risk-Based Approach (RBA)
The 2025 updates to the FATF Standards reinforce the RBA, explicitly requiring countries to “allow and encourage simplified measures in lower risk scenarios” to better promote financial inclusion. The definition of “proportionate” measures is clarified to mean actions that appropriately correspond to the level of identified risk. This means banks must differentiate their AML/CFT measures depending on the type and level of risk, rather than applying a one-size-fits-all approach.

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