As the world becomes increasingly interlinked, financial services are undergoing a massive technological transformation. Cross-border payments can be made instantaneously, 24/7. Moreover, the number of payment providers is growing quickly. All this boosts competition, which benefits consumers as well as the overall economy. But the rapid transformation of the financial sector comes at a price (or additional risks). Such swift money movement requires in-depth knowledge of the customer, as well as the funds’ origins. Therefore, AML (Anti Money Laundering) compliance and accurate KYC (Know Your Customer) procedures must be a top priority for financial market participants. The price for ignoring these rules can be steep – in terms of reputation, financial sanctions, and relationships with partners (correspondent banks). A conservative approach to AML requirements or the inability to manage risk properly (due to insufficient resources, knowledge, etc.) by financial institutions can lead to other negative consequences, including ‘derisking’, namely, when financial market participants prefer to restrict or even terminate a business relationship rather than to manage the risks entailed by that relationship. Such a situation has the potential to harm the economy, as some parts of society (regular people as well as businesses) may thus be prevented from engaging in economic activity or securing access to primary financial services (e.g. financing).
Thus, it is vital for us, the regulator and supervisor of the financial market, as well as for financial market participants, to find the right balance regarding financial regulation. Accordingly, our main focus is on preventive measures. We strive to educate the market, to ensure that companies understand the risks they are facing when operating in the financial system and to implement adequate control measures. We organise training and other events to discuss problems and identify possible solutions, publish position papers and recommendations based on supervisory experience and provide other useful tools. We are convinced that the most effective way to tackle this challenge is by uniting the forces of all parties involved.
As a further step forward, the Bank of Lithuania and the Ministry of Finance proposed to establish the Centre of Excellence in Anti-Money Laundering (AML Centre). The idea for this Centre was stimulated by several factors, including the widespread use of modern technologies that are changing the face of the financial sector, recommendations of international organisations (International Monetary Fund, European Commission, MONEYVAL, Financial Action Task Force) and the goal of implementing the best and most effective AML practices in Lithuania. It took more than a year and a half to build the structure of the Centre from scratch and to adjust legislation accordingly. Now we are in the final stage of the project, building up a team of employees.
The Centre of Excellence in Anti-Money Laundering is based on public/private partnership principles and is set up to mobilise public and private AML/CTF (combating the financing of terrorism) efforts as well as to strengthen the prevention framework. The Centre is a unique project that involved the Bank of Lithuania co-founding an independent non-profit company together with the Government of Lithuania and financial market participants.
The Centre was established by the Ministry of Finance of the Republic of Lithuania, the Bank of Lithuania and the country’s commercial banks. Other financial market participants and law enforcement bodies are expected to join in its activities as well.
The AML Centre has five initial tasks: (1) share information on ML/TF (money laundering/terrorism funding) typologies and set up a dedicated information exchange platform, thus helping the financial market to ensure proper risk identification and management; (2) carry out studies, assessments and analyses, as well as prepare guidelines, recommendations, methodologies and legislative initiatives to improve the AML/CTF framework in Lithuania; (3) assist private sector entities in conducting internal AML/CTF risk assessments, and strengthen the competence of public and private sector staff in the AML/CTF field; (4) organise relevant events, including training, seminars, and conferences; and (5) publish information on the implementation of AML/CTF measures.
A well-functioning financial sector requires that AML compliance stands at the very heart of financial companies. We believe that the AML Centre will improve the resilience of the financial system, reduce the likelihood of systemic errors, and allow particular cases to be handled with greater speed and efficiency. These contributions will benefit not only Lithuania but the entire Baltic region. By supervising AML, cybersecurity, and other risks in the financial market, we seek to ensure that ‘Licensed in Lithuania’ will continue to be a sign of quality and trust.
Chronology
4 July 2019: the Advisory Commission on Financial Markets Policy Formation took upon itself to evaluate the possibility of establishing the Centre to enhance cooperation in the AML/CTF field between supervisory institutions, law enforcement entities and financial market participants. The Bank of Lithuania and the Financial Crime Investigation Service set up a working group which, together with representatives of the Ministry of Finance, analysed best international practices and discussed various examples of collaboration between the public and private sectors.
6 April 2020: the establishment of the AML Centre of Excellence was approved by the Government of the Republic of Lithuania. Its founders and stakeholders are the Bank of Lithuania, the Ministry of Finance of the Republic of Lithuania as well as commercial banks operating in the country. A publication on the concept of the Centre was published as well.
28 October 2020: the Government of the Republic of Lithuania adopted a resolution on the establishment of the AML Centre of Excellence.
This editorial was first published in our Financial Crime and Fraud Report 2021 - How to Fight Fraud and Master KYC, Onboarding & Digital ID, which provides a comprehensive overview of the major trends driving growth in fraud prevention, identity management, digital onboarding and KYC, transaction monitoring, financial crime compliance, regtech, and more.
About Jekaterina Govina
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