Money Laundering Reporting Officer (MLRO) challenges and best practices

At payments and regtech events, MLROs are frequently asked about their top concerns and challenges.

Compliance specialist, Ambreen Khasru dives into these critical issues, highlighting best practices to help MLROs effectively manage the complex demands of their role.

In today’s global financial landscape, combating financial crime is a priority for regulators, financial institutions, and other sectors that deal with clients' money. One of the key roles in this fight is the Money Laundering Reporting Officer (MLRO), whose responsibility is to ensure that these organisations comply with anti-money laundering (AML) regulations. This includes detecting and reporting suspicious activities, ensuring staff are trained, and maintaining an effective system of controls. While the role of the MLRO is vital, it also comes with a unique set of challenges. I will try to explore these challenges and outline some best practices that can help MLROs navigate the complexities of their responsibilities.

When I have taken on the role as MLRO I have faced many different challenges ranging from increasing regulatory complexity to balancing the expectations of senior management, regulatory authorities, and external stakeholders and many things in between which you might expect.

I have often found myself at a fintech that works or has aspirations to work across different jurisdictions where regulations can vary significantly in terms of reporting requirements, risk assessments, and due diligence standards. On top of these, while the Financial Action Task Force (FATF) sets international standards, national regulatory bodies may introduce stricter measures, creating compliance issues for global organisations.

These same regulators can often times tighten rules around KYC (Know Your Customer), transaction monitoring, and enhanced due diligence depending on the risk exposure that their financial institutions can cause in their respective markets making the pressure on MLROs to ensure compliance even more pronounced. Failure to comply can result in hefty fines, reputational damage, and in extreme cases, criminal prosecution for those responsible, and this can feel somewhat burdensome especially when you lack the necessary internal support.

With the rise of digital banking, online payments, cryptocurrencies, and blockchain technology new avenues for money laundering have surfaced. Some of the new risks and trends that I have seen and tried to combat have been sometimes unexpected and at other times fraudsters have demonstrated an alarming level of creativity, adapting to both technological advancements and regulatory loopholes. Their increasing ingenuity has resulted in more sophisticated schemes that often outpace traditional detection methods.

Artificial intelligence (AI) technology advances allow fraudsters to leverage deepfakes and machine learning to enhance their scams. To stay ahead of these sophisticated criminals, fintechs and their MLROs need to look at even more advanced fraud detection systems, continuously update security measures, and provide regular employee training on the latest scams and threats. Additionally, a robust regulatory framework and collaboration between financial institutions, tech companies, and law enforcement are critical to curbing the impact of these creative and ever-evolving financial crimes.

However, balancing AML/CTF compliance (which often requires sharing sensitive customer data) with data privacy regulations (e.g., GDPR) is another significant concern.

This balance is increasingly difficult as both sets of requirements have competing priorities. AML/CTF regulations mandate the collection, storage, and sharing of certain customer information for the detection and reporting of financial crimes, while data privacy laws focus on protecting individuals’ data and limiting its use.

And I haven’t even touched upon cyber security risks, Environmental, Social, and Governance (ESG) Risks, and more importantly resource constraints. Many organisations face pressure to allocate sufficient resources (staff, budget, technology) to AML/CTF compliance, which can make it challenging for MLROs to carry out their duties effectively.

As regulations become more stringent and financial crime risks grow more sophisticated, the delicate balance of investing enough resources in compliance without overburdening operations or diminishing profitability is something else to ponder. Resource constraints can impact everything from staffing and technology infrastructure to training, data management, and regulatory reporting.

So what can we do as MLROs to handle all of this and remain compliant?! I would begin with an effective AML programme essentially creating a comprehensive framework to detect, prevent, and report illicit financial activities.

• It starts with Know Your Customer (KYC), implementing customer identification and verification procedures to understand who you're doing business with, including enhanced due diligence for high-risk clients.

• Risk assessment: evaluate risks based on customer, transaction, product, and geographic factors. Use a risk-based approach to allocate resources effectively.

• Transaction monitoring and Suspicious Activity Reporting (SAR): monitor transactions for suspicious patterns and file SARs with authorities when necessary.

• Employee training: regularly training colleagues on recognising suspicious activity and adhering to AML policies.

• Recordkeeping: maintain accurate transaction and customer records as per regulatory requirements for several years.

• Audits: regularly review the effectiveness of the AML program through internal and external audits, adjusting as needed.

• Technology and automation: use advanced tools like AI and machine learning for real-time transaction monitoring and to detect suspicious behaviour, especially for emerging risks.

• Regulatory compliance: ensure the program adheres to national and international laws.

• Reporting and communication with authorities: establish clear channels for reporting suspicious activities and cooperating with regulators and law enforcement.

• And the biggest one is fostering a culture of compliance within the organisation, with senior management leading by example and encouraging employee vigilance.

And why do I continue to be an MLRO do you ask? Because being an MLRO is not just about compliance; it's about making a real difference. It's a role that offers personal satisfaction, hoping that I’m actively contributing to the integrity of the financial system. Intellectual challenges that come with investigating complex cases and staying ahead of emerging threats. More than that, I see it as a chance to shape the future of financial crime prevention, while creating a culture of compliance within the organisation I keep going back to. The opportunity to make a significant impact, and solve problems is extremely motivating and engaging.

By learning from real-world experiences and adopting a proactive, risk-based approach to anti-money laundering, MLROs can help protect their organisations from potential legal, financial, and reputational damage while ensuring that they comply with regulatory expectations.

About Ambreen Khasru

Ambreen has a global career working in the UK, Australia, France, and Sweden. In 2011 she joined the financial services industry starting in a mature remittance company and then moving through a series of fast-growing fintechs including neobanks, BNPL, and embedded finance where she has held key compliance roles. Her compliance passion is immersing herself in the fight against financial crime and trying to make a difference.