Understanding Compliance in Banking Flashcards
What is compliance?
Compliance is the observance of or adherence to rules, regulations, laws, policy requirements and best practices governing the bank or an organisation
Why is compliance important?
- Sustainable growth
- Good reputation
- Strong Brand
- Benchmark for industry standards
- Stakeholder confidence
- Best place to work
- Attract and retain talent
- Customer satisfaction
Which regulators form part of our regulatory universe?
- Bank of Ghana
- Financial Intelligence Centre
- Securities and Exhange Commission
- Ghana Deposit Protection Corporation
- Ghana Revenue Authority
What are some laws that affect the regulation of banks?
- Bank of Ghana Act (Act 612), 2002
- Bank of Ghana Amendment Act (Act 918), 2016
- Banks & Specialized Deposit Taking Inst. Act (930) 2016
- Borrowers & Lenders Act (1052), 2020
- Anti-Money Laundering Act 1044, 2020
What is money laundering?
A process of converting cash or property
derived from criminal activities to give it a
legitimate appearance
What is terrorist financing?
It refers to financial transactions that facilitate terrorist activity either through simple indistinguishable transactions, that appear normal or using lawful and unlawful sources of funds such as charitable donations and money laundering.
What is proliferation financing?
This refers to financial transactions that facilitate the spreading of weapons of mass destruction and technology that violate international non-proliferation agreements and conventions.
What is willful blindness/ evasion?
This refers to turning a blind eye or consciously avoiding facts of money laundering or terrorists financing.
Describe the money laundering process?
The money laundering process involves three steps. These are placement, layering and integration. Placement involves integrating the dirty money into the financial system typically by depositing small amounts in the bank under different accounts. Layering involves hiding the trail of the money by making complex transactions such as moving funds across offshore/onshore accounts. Integration involves using the funds to purchase luxury items/ investments to make the money appear as legally earned.
What are the penalties for money laundering according to the AML Act, 2020 (Act 1044)
- a fine not less than 100% and not more than 500% of the proceeds for money laundering (if you’re an individual)
- a term of imprisonment not less than a year but not more than 10 years
- both the fine and imprisonment
- a fine of not less than 300% of the proceeds of money laundering in the case of a corporate entity.
- the property acquired can also be confiscated
What is KYC (Know Your Customer)?
It refers to a set of guidelines that financial institutions follow to verify the suitability and risks of a current or potential customer.
What are the three steps in the know your customer (KYC) framework?
- Customer Identification Program (CIP)
- Customer Due Diligence (CDD)
- Enhanced Due Diligence (EDD)
Describe the customer identification programme (CIP)
It refers to identifying information about a customer including name, date of birth, identification number and address, this can be verified from the NIA database.
Describe Customer Due Diligence (CDD)
This refers to using information obtained from the customer identification programme to verify a customer’s identity and asses the level of criminal risk they present. This typically involves examining the nature and benefits of existing relationships.
Describe Enhanced Due Diligence
This is done for customers labelled as high-risk, according to the regulator. This is done to understand their source of wealth and their motivations. EDD includes wealth verification, detailed identification information on key beneficial owners, reputational risk assessment. etc.
What is the customer lifecycle in a bank?
- Account onboarding- opening the account and any initial steps
- account activation- enabling access to banking services
- account maintenance- day to day servicing of the customer
- periodic review- updating customer information and evaluating relationship
- account closure: ending the relationship
What is a red flag identification in banking?
It involves recognizing unusual or suspicious behaviors, activities or transactions that may indicate fraudulent activities or any form of financial crimes.
Why is red flag identification important?
- Fraud Prevention: Helps detect and stop fraudulent activities early.
- AML Compliance: Essential for adhering to
Anti-Money Laundering (AML) regulations and avoiding regulatory penalties. - Risk Mitigation: Protects the bank from
financial, reputational, and legal risks. - Customer Safety: Safeguards customers from unauthorized or illicit activities
involving their accounts.
What are some red flags in banking?
- Transactions involving high-risk countries or jurisdictions vulnerable to ML/TF & PF
- Transactions involving shell banks/ companies
- Large transaction activity involving monetary instruments such as traveler’s cheques, bank drafts, money order, particularly those that are serially numbered.
- Transaction activity involving amounts that are just below reporting thresholds
- Significant increases in cash deposits of an individual or business entity without apparent cause
- Customers who deposit cash through many deposits slips such that the amount of each deposit is relatively small, but the overall total is quite significant
8.Customers whose deposits contain forged currency notes
- Branches of financial institutions that tend to have far more cash transactions than usual, even after allowing for seasonal factors
- Fictitious information on the transaction provided by a customer that the financial institution is not able to verify
- Lack of identification in support of an account opening application by a person who is unable or unwilling to provide the required documentation.
- Customers maintaining multiple accounts with the same or different financial institution or different financial institutions for no apparent reason
- Customers ask for early redemption of certificates, deposits or other investments, soon after purchase
- Customers who repay delinquent loans unexpectedly
- Customers that are reluctant about the purpose of a loan
- Loans secured by pledged assets held by third parties unrelated to the borrower.
- Loans are made for, or are paid on behalf of, a third party with no reasonable explanation
- Stated occupation of the customer is inconsistent with the activity on the account.
How do you report suspicious transactions or activities according to BOG’s guidelines?
The Accountable Institutions (AIs) which is unable to perform the
necessary required CDD:
1. shall not open the account, commence business relationship or perform the transaction; and
2. shall submit a Suspicious Activity Report (SAR)/Suspicious Transaction
Report (STR) to the Financial Intelligence Centre (FIC) within 24hours.
3. The AIs that has already commenced the business relationship shall terminate the business relationship immediately and submit
STR/SAR to the Financial Intelligence Centre (FIC) within twenty-four
hours.
