Anti Money Laundering (AML) rules and regulations might be confusing, even though they are pretty different. Simply, they differ from each other in their purpose, whereas both must be followed. The reason why the two concepts are confused is that they have many similarities. For example, both are part of the Constitution and violating both concepts can result in penalties.
AML rules are guidelines and instructions for doing something right. It is created to manage behavior in an organization or country. They are like written principles. On the other hand, regulations are directives made in addition to the laws in a particular country. They are imposed to address gaps in the existing system. The main differences can be listed as follows:
| Rules | Regulations |
|---|---|
| Rules are often considered to be more informal and may be set by individuals, organizations, or groups to guide behavior. They can be specific to a particular context or group. | Regulations are typically more formal and are often established by a government or governing body. They are generally legally binding and have a broader scope, applying to a larger population. |
| Enforcement of rules may be less formal and could rely on social or organizational norms. Consequences for breaking rules may vary and may not always involve legal action. | Enforcement of regulations is usually more formalized and can involve legal consequences, fines, or other punitive measures. |
| Rules can originate from various sources, including individuals, organizations, or community agreements. They may not necessarily be backed by a legal framework. | Regulations often have a legal basis and are established by government authorities or regulatory bodies. They are usually part of a formal legal system. |
| Rules can be specific to a particular group, organization, or context. They may not have universal applicability. | Regulations often have a broader application, covering a larger geographic area or a whole industry. They aim to establish standards that apply more universally. |
| Rules may be more flexible and subject to change based on the needs or preferences of the group or organization establishing them. | Regulations tend to be more stable and may require a formal process for amendment or change. They are often designed to provide a stable framework for governance. |
What Are the AML Rules and Regulations?
The threat of money laundering, terrorist financing, and other illicit financial activities has become a significant concern for governments, regulatory bodies, and financial institutions worldwide. To address these risks, AML rules and regulations have been established to create a robust framework for preventing and detecting financial crimes.
AML rules and regulations are a comprehensive set of laws, regulations, and guidelines that govern the conduct of individuals, businesses, and financial institutions to ensure the financial system's integrity. These rules aim to identify and prevent the illegal conversion of illicitly obtained funds into legitimate assets, thereby disrupting criminal networks and preserving the transparency and stability of financial markets.
The origins of AML regulations can be traced back to the increased recognition of the negative consequences associated with money laundering and its link to various criminal activities, such as drug trafficking, corruption, fraud, and terrorism. Governments and international organizations recognized the urgent need to develop a coordinated response to combat these illicit activities, leading to the formulation of legal frameworks and regulatory requirements.
The primary objective of AML rules and regulations is to establish effective measures for preventing, detecting, and reporting suspicious financial activities. Financial institutions and designated non-financial businesses and professions (DNFBPs), such as casinos, real estate agents, and lawyers, are particularly targeted due to their role in facilitating financial transactions and their susceptibility to exploitation by money launderers.
Some AML Supervisory Bodies Across the World
Financial Action Task Force (FATF)
The Financial Action Task Force is an intergovernmental organization and has 36 members globally. FATF’s primary task is to set global standards for AML compliance. Its recommendations are internationally accepted standards against money laundering and terrorist financing. FATF's requirements are mainly to Know Your Customer (KYC), Customer Due Diligence (CDD) measures, regularly monitor suspicious financial activities and impose effective sanctions against individuals and institutions that do not comply with these regulations.
European Union
European Union prepared some directives; the 5th Money Laundering Directive (5AMLD) and 6th AMLD. The aim is to harmonize the AML/CFT legislation of the member states. It is prepared by considering the risks the market faces and the potential to encounter and is published periodically. There are six directives shared so far. EU had made some changes in these directives depending on when they were issued. For example, the 5th AMLD, which is the directive that contains regulations against cryptocurrencies, was published when there was an agenda for appreciating them.
Financial Conduct Authority (FCA)
The Financial Conduct Authority is the body responsible for regulating financial services in the UK. FCA operates independently from the UK government. It was established on 1 April 2013 to conduct related precautionary regulation concerning Part 1A of the Financial Services and Markets Act 2000 (FSMA). The establishment purpose of the FCA is to regulate the behavior of financial firms and the stability of the market. To achieve this goal, it has the power to set AML rules; and implement, investigate, and execute them.
Hong Kong Monetary Authority (HKMA)
The Hong Kong Monetary Authority is a public agency established on April 1, 1993, as a central bank and Hong Kong's currency board. HKMA was established and started operations with the Office of the Commissioner of Banking and the Office of the Exchange Fund. It is responsible for Hong Kong's banking and monetary policy stability. The HKMA is accountable for anti-money laundering and combating terrorist financing. It ensures that financial institutions meet various ban requirements and develop the AML / CFT program. Under the HKMA AML policy, companies should pay attention to risk assessments, procedures, and compliance officers' training.
Monetary Authority of Singapore (MAS)
The Monetary Authority of Singapore regulates the service and financial sector as the state's central bank. As a government agency, the MAS operates with a strict code of conduct and takes into account certain core values, including a commitment to professionalism, honesty, and fairness. It has been managing Singapore's financial development for over forty years, creating tactics and strategies that make it a top-notch hub for international finance. Among MAS's duties are conducting monetary policy, supervising financial institutions, managing reserves and assets, and improving Singapore's international economic situation. Financial institutions must comply with MAS's AML policies. The standards set by MAS are mainly customer due diligence, knowing your customer, reporting, and monitoring.
Bank Secrecy Act (BSA)
The Bank Secrecy Act is the United States of America's most crucial anti-money laundering regulation. The US Bank Secrecy Act BSA was implemented in 1970. Still, it continues to be one of the essential sources of regulation for American and global financial systems, with wide-ranging effects across the sector. At the same time, BSA serves as a primary tool to obligate financial institutions to aid the government in efforts to AML and other financial crimes. Since its implementation, it's been amended several times. Its roles in money laundering and financing terrorism are shared with the USA Patriot Act.
Australian Transaction Reports and Analysis Center (AUSTRAC)
The Australian Transaction Reports and Analysis Center is the Australian government's primary financial intelligence agency. Its main task is to combat money and terrorist financing. In addition, AUSTRAC tries to detect criminal threats and gaps in the Australian financial system. The standards that companies are expected to comply with are mainly detection, monitoring, and reporting. As the Financial Intelligence Unit, AUSTRAC shares its findings locally and internationally with the required mass and law enforcement agencies. It is also involved in several national and state task forces that provide expert financial intelligence to national security and serious and organized crime international efforts.
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