𝗧𝗵𝗲 𝗦𝗵𝗶𝗳𝘁𝗶𝗻𝗴 𝗟𝗮𝗻𝗱𝘀𝗰𝗮𝗽𝗲 𝗼𝗳 𝗖𝗼𝘂𝗻𝘁𝗿𝘆 𝗔𝗠𝗟 𝗘𝗾𝘂𝗶𝘃𝗮𝗹𝗲𝗻𝗰𝗲: 𝗪𝗵𝗮𝘁 𝗙𝗶𝗻𝗮𝗻𝗰𝗶𝗮𝗹 𝗦𝗲𝗿𝘃𝗶𝗰𝗲 𝗕𝘂𝘀𝗶𝗻𝗲𝘀𝘀𝗲𝘀 𝗡𝗲𝗲𝗱 𝘁𝗼 𝗞𝗻𝗼𝘄 🌍
For financial service businesses (FSBs), relying on third parties in other countries to perform Customer Due Diligence (CDD) measures can streamline onboarding, particularly for non-resident clients. 𝗕𝘂𝘁 𝘁𝗵𝗲𝗿𝗲’𝘀 𝗮 𝗰𝗮𝘁𝗰𝗵: reliance provisions require compliance with conditions tied to both the third party and the country they operate in.
Traditionally, AML equivalence was simple, with regulators providing "White Lists" of compliant countries. The 𝗙𝗼𝘂𝗿𝘁𝗵 𝗠𝗼𝗻𝗲𝘆 𝗟𝗮𝘂𝗻𝗱𝗲𝗿𝗶𝗻𝗴 𝗗𝗶𝗿𝗲𝗰𝘁𝗶𝘃𝗲 (𝗠𝗟𝗗4) shifted focus to non-equivalence, highlighting high-risk countries by FATF and the EU, complicating assessments.
𝗧𝗵𝗲 𝗖𝗵𝗮𝗹𝗹𝗲𝗻𝗴𝗲 𝗼𝗳 𝗠𝗼𝗱𝗲𝗿𝗻 𝗘𝗾𝘂𝗶𝘃𝗮𝗹𝗲𝗻𝗰𝗲
It’s tempting to assume that countries not on FATF or EU high-risk lists are AML equivalent, but this is far from the case. Equivalence assessments now demand a risk-based approach, factoring in:
• The effectiveness of AML supervision (e.g., FATF Immediate Outcomes 3 and 4).
• Technical compliance with AML standards (e.g., FATF Recommendations 10-13, 15-21, and 26).
Jersey’s updated post-Brexit AML guidelines, for instance, set a high bar, urging FSBs to evaluate AML equivalence using these criteria. However, reliance on Mutual Evaluation Reports (MERs) poses challenges, as many are outdated and don’t provide a “real-time” view of compliance. Even top jurisdictions like France, Germany, and the Netherlands have recently scored low in some key AML measures.
𝗛𝗼𝘄 𝗙𝗦𝗕𝘀 𝗖𝗮𝗻 𝗡𝗮𝘃𝗶𝗴𝗮𝘁𝗲 𝗧𝗵𝗲𝘀𝗲 𝗖𝗵𝗮𝗹𝗹𝗲𝗻𝗴𝗲𝘀
1️ 𝗗𝗼𝗻’𝘁 𝗥𝗲𝗹𝘆 𝗦𝗼𝗹𝗲𝗹𝘆 𝗼𝗻 𝗠𝗘𝗥𝘀: Use them as a starting point, but supplement with recent independent assessments from FATF, IMF, or the World Bank.
2️ 𝗗𝗼𝗰𝘂𝗺𝗲𝗻𝘁 𝗬𝗼𝘂𝗿 𝗣𝗿𝗼𝗰𝗲𝘀𝘀: Ensure your equivalence methodology is clearly defined, regularly reviewed, and defensible under regulatory scrutiny.
3️ 𝗠𝗶𝘁𝗶𝗴𝗮𝘁𝗲 𝗚𝗮𝗽𝘀: Where a country has identified weaknesses, apply enhanced due diligence and controls to address risks.
4️ 𝗔𝗱𝗼𝗽𝘁 𝗮 𝗥𝗶𝘀𝗸-𝗕𝗮𝘀𝗲𝗱 𝗔𝗽𝗽𝗿𝗼𝗮𝗰𝗵: Tailor your equivalence assessments to align with your organization’s risk appetite and operational needs.
The determination of AML equivalence has shifted from being a simple checklist exercise to a nuanced, ongoing process. FSBs must now balance operational efficiency with regulatory compliance, ensuring their reliance practices are robust, flexible, and transparent.
How is your organisation navigating these changes? Are reliance provisions still practical in the post-White List era? 𝗟𝗲𝘁’𝘀 𝗱𝗶𝘀𝗰𝘂𝘀𝘀! 💬
#KnowYourCountry #AML #FATF #AMLEquivalence
