What Is an AML Effectiveness Review?

An AML effectiveness review is a detailed review of your AML/CFT compliance program. If a regularly scheduled audit determines whether or not policies and procedures exist, an effectiveness review determines whether or not those policies exist and function the way they're intended to.

The following elements are typically assessed:

• Policy and control design and implementation
• Personnel training and familiarity
• Transaction monitoring and reporting
• Assessment of a risk-based approach
• Governance and reporting
• Reporting escalation and case management

Read more about how we conduct AML Effectiveness Reviews.

Reasons to Have Them Annually

1. Regulatory Compliance and Preparedness

Regulators such as FINTRAC, FCA, FATF expect regulated entities to not only have an established AML program—but to also prove that the program is effective. Annual reviews position you to:

• Fulfill compliance considerations
• Be audit-ready for regulatory examinations or onsite assessments
• Identify deficiencies and gaps internally before regulators walk in
• Show the regulators any documentation required to demonstrate that compliance is taken seriously

When regulators decide a program is ineffective, there are ramifications—regardless of whether or not proper policies exist in a bubble.

The financial crime landscape is ever-evolving. Criminals continuously create new methods to exploit even the most innocent of institutions, and with emerging trends like digital assets and the expansion of FinTech, nothing is more at risk. An effectiveness review provides your firm with the opportunity to:

• Test controls against new and existing typologies;
• Identify gaps in customer onboarding, monitoring, or reporting;
• Assess whether your application of risk appetite is both applicable and practical.

For example, a firm that doesn't readjust its transaction monitoring rules after setting them once will miss new signs of illicit activity.

2. Protects Your Brand

Brand matters in the world of financial services. When a firm has an ineffective AML process, it risks getting shut down with enforcement actions, bad press, or ultimately, a suspended license. Frequency provides measures to ensure that:

• Issues are flagged earlier than later;
• Senior management is kept in the loop;
• Controls are consistent with regulatory best standards.

Thus, showing this proactive approach shows partners, clients, and regulators that compliance is part of the company's culture.

3. Increased Efficiency

Reviews often uncover automation opportunities, process tweaks, and training for staff activities that can save tremendous time and money, including:

• Fixing transaction monitoring false positives
• Optimizing escalation processes
• Unnecessary KYC refresh cycles

4. Licensing and Expansion Opportunities

Expanding your line of business or registering in a new jurisdiction? Regulators are more prone to granting acceptance to businesses with proven compliance effectiveness.

Regular effectiveness reviews are particularly valuable when applying for:

• MSB registration
• Retail Payment Activities Act (RPAA) licensing
• VASP licenses in European and global markets

5. Better Decision Making

Compliance compliance prevents punishment but also, with knowledge of your strengths and weaknesses, you can:

• Properly budget where the greatest need exists
• Properly train personnel where targeted learning works best
• Improve third-party vendor selections

When Should an Effectiveness Review Be Done?

When Should You Get An AML Effectiveness Review?

While there's no right answer, here are the common triggers:

• Annually (required for most regulated firms unless micro)
• Before or after a major regulator exam
• After launching a new product/new service/new market
• After significant internal changes (turnover, mergers and acquisitions)
• After receiving compliance reporting red flags or an internal audit

Why Should You Outsource Your AML Effectiveness Review?

Sometimes, an internal team may not appear independent or may lack the specific subject matter expertise to provide a comprehensive review. An outsourced third party will deliver:

• Documentation submitted and prepared for a regulator's eye
• Non-industry sensitive guidance applicable to your business model
• Established rapport with best practices across various other business offerings

AML Incubator provides this bespoke offering, assessing the technical, procedural, and operational effectiveness of your AML program—from CAMLO/MLRO to remediation and consultative. We are Your Trusted Partner in Regulatory Excellence.

AML effectiveness reviews are no longer a "nice to have" but a "must have." In a constantly changing compliance environment and shifting regulatory landscape from "check-the-box" to "prove-it-works," having an AML effectiveness review could be the difference between raising red flags or going through the regulatory process smoothly.

Haven't had one in a while? Get it done now.

Related Blogs to Explore

• 5 Components of an Effective Compliance Program in Canada
• Navigating Compliance Challenges in FinTech
• The Success from Day One: 4 Benefits of Outsourcing Compliance for Startups
• Why Companies Outsource Compliance
• How to Comply with a Production Order: A Step-by-Step Guide

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