An effective AML/CFT/CPF system does not operate in silos. It depends on strong cooperation between businesses and regulatory authorities.
FATF and other supra-national regulatory bodies such as AMLA, have been formed to effectively prevent criminals from using the financial system to monetise criminal activity. Building an effective regime requires businesses under regulation to assist in the fight against illicit financial transactions.
It is a two way relationship that requires dedicated effort on the part of regulated entities, not just to the letter of regulations but equally to the spirit, since so much of prevention or discovery depends on judgement, proactive attitude and a leaning forward posture.
At the heart of what regulated businesses must achieve are four key objectives: knowing their customers on a deep level, comprehensively assessing customer risk, implementing effective controls to mitigate assessed risks and filing helpful suspicious activity reports.
Regulators have three key responsibilities: providing clear regulatory guidance, offering timely feedback, and fostering open communication with all stakeholders.
Regulators should not simply issue regulation but foster a consultative culture of prior consultation and be readily available to answer questions on clarification and application. Such conversations can lead to important rule amendments which in turn lead to more effective implementation. In this regard the role of independent industry consultants such as AML auditors should not be overlooked. Auditors are able to provide valuable insights on trends, challenges and weaknesses at the level of regulated entities, based on extensive audit data. They can provide insights which are not evident from an individual report but emerge into clear view when report analysis is aggregated and a consultant is able to provide context.
Regulators should offer constructive feedback. I tell apprehensive clients being audited for the first time that the regulator’s intention is not to shut down businesses – that would not be in the national interest. The audit gives the regulator an opportunity to provide targeted guidance which enables effectiveness and enables the entity to avoid regulatory sanction.
Training interventions by the regulators for all stakeholders should be a regular occurrence.
Systems breakdown and effectiveness is weak where businesses receive little feedback on reports, communication between regulators and industry is limited and opportunities for collaboration are missed. There are however encouraging examples of effective two-way collaboration:
Structured Public–Private Partnerships (Malaysia)
Malaysia was recognised for strong coordination and engagement mechanisms between authorities and the private sector.
- Regular public–private dialogue platforms involving banks and regulators
- Sharing of typologies and emerging risks (e.g., fraud, cross-border risks)
- Ongoing engagement between supervisors, FIU, and financial institutions
The system benefits from “well-developed cooperation and coordination” between authorities and industry. Businesses receive real-time insight into risks. Regulators gain feedback on emerging threats from the frontline.
Example 2: Feedback from FIU to Reporting Entities (Belgium)
Belgium demonstrated effectiveness where its Financial Intelligence Unit:
- Provided feedback on suspicious transaction reports (STRs)
- Shared guidance on improving report quality
- Issued typology reports and case examples
Financial intelligence is strengthened where reporting entities receive feedback that improves future reporting. Reporting becomes more analytical and useful and businesses understand what constitutes a “good” report.
A vibrant two-way communication culture not only increases effectiveness, it facilitates increased confidence for all parties built on informed trust.
Louis Parris is an Anti-money laundering Audit, Risk & Training Consultant.