Initiatives by the BCBS, IAIS and IOSCO to Combat Money Laundering and the Financing of Terrorism

THE JOINT FORUM BASEL COMMITTEE ON BANKING SUPERVISION INTERNATIONAL ORGANIZATION OF SECURITIES COMMISSIONS INTERNATIONAL ASSOCIATION OF INSURANCE SUPERVISORS 1/10 June 2003 Initiatives by the BCBS, IAIS and IOSCO to combat money laundering and the financing of terrorism This joint note from the Basel Committee on Banking Supervision (BCBS), International Association of Insurance Supervisors (IAIS) and International Organization of Securities Commissions (IOSCO) provides a record of the initiatives taken by each sector to combat money laundering and the financing of terrorism. It was first prepared for the March 2003 Joint Forum meeting in Hong Kong, and thereafter submitted for the information of the Coordination Group at its March 2003 meeting in Berlin. The note is intended to be descriptive rather than prescriptive, and does not attempt to be comprehensive in its coverage of anti-money laundering/combating the financing of terrorism (AML/CFT) issues. To the extent that institutions in each sector are offering the same services, AML/CFT measures and standards need to be reasonably consistent; otherwise there would be a tendency for criminal funds to flow to those institutions in those sectors operating under less stringent standards. However, variations in patterns of relationships between institutions and customers in each sector require AML/CFT requirements to be tailored to the circumstances of the relationship. Hence, AML/CFT standards may reasonably differ in the detail and intensity of their application. This note is divided into two parts. The first Part provides an overview of the common AML/CFT standards that apply to all three sectors and an assessment as to whether there are serious gaps or inconsistencies in approaches and recommendations. Part 2 consists of contributions by each of the three Secretariats. This is in three sections and covers, for each sector: the relationships between the institutions and their customers focussing on the products or services that are particularly vulnerable to money laundering; how each Committee has sought to address these vulnerabilities; and, finally, a description of ongoing and future work. Part I: Overall assessment The AML/CFT elements common to all three financial sectors are essentially prescribed by the FATF’s 40 Recommendations and its subsequent eight special recommendations. The 40 Recommendations are currently under review and will lead to further changes in the standards prescribed. Just recently the FATF has worked with the IMF and World Bank to develop a “Methodology for Assessing Compliance with Anti-Money Laundering and Combating the Financing of Terrorism Standards” (the Methodology). The BCBS, IAIS and IOSCO were consulted at several stages in the development of this document, and especially on the content of three annexes applicable to each sector. This comprehensive Methodology is already being used as the basis for FATF and FATF-style mutual 2/10 evaluations, as well as by the IMF and World Bank in the Financial Sector Assessment Program (FSAP) and by the IMF in the Offshore Financial Centre Assessment Program. The FATF standards and the Methodology encompass the following aspects of AML/CFT: • customer identification; • ongoing monitoring of accounts and transactions; • record-keeping and reporting of suspicious transactions; • internal controls and audit; • integrity standards; and • cooperation between supervisors and other competent authorities. Given the broad scope of coverage of the FATF standards, it seems to the authors that there are no serious gaps or inconsistencies in the approaches to AML/CFT in the three sectors. The Methodology further contains sector-specific criteria for banking, insurance and securities supervision of AML/CFT established by the BCBS, IAIS and IOSCO. The sector-specific criteria for bank supervision are the most detailed and extensive of the three sectors in recognition of the greater vulnerability of the banking sector. In the assessments conducted recently, national authorities have in fact scored quite poorly against the banking criteria. Nonetheless, the fact that the individual sector criteria are included within and examined under the Methodology means that the principles laid down are highlighted for national authorities and provide a benchmark for them to aim at. From the specific perspective of the Joint Forum, questions arise concerning group-wide application of AML/CFT pr