The AML in AML compliance stands for anti-money laundering. AML compliance means following regulations designed to deter money laundering through both prevention and detection.
The Bank Secrecy Act that was passed in 1970 set up regulations for tracking the sources, amount, and exchange of money into and out of the U.S. Other acts followed, each one addressing different aspects of AML compliance. As terrorist attacks and cybersecurity threats have increased, these rules have become more important and stricter than ever.
In order to comply with these rules, a financial institution must adhere to the AML rules outlined in FINRA Rule 3310. FINRA is the Financial Industry Regulatory Authority. These rules clearly define the minimum standards for written AML compliance programs.
These programs must be designed so that the financial institution can detect and report suspicious occurrences accurately. As a part of AML compliance programs, customer identification programs must be risk-based to effectively enable the bank to know the true identity of their customer. Once the AML compliance program is designed, it must be approved and signed by a senior manager.
Next, the program must be tested independently so that it can be implemented properly. Training is also a vital part of AML compliance programs so that employees of the FI are well-equipped to follow the laws proficiently.
FINRA provides an AML template for small firms to use in creating their AML compliance programs. These templates can be helpful resources because they include instructions and text examples that can be used for developing an effective program. AML software is also available to facilitate compliance with the rules in a more efficient way.
Failure to follow AML regulations can bring legal consequences initiated by the government. The resulting penalties can include large fines, assignment of criminal responsibility or other negative effects. AML compliance, then, is crucial for any financial institution.