Risk, Regulation and Compliance Jargon Buster

John Smith

As a worldwide company, we have consultants working on regulatory projects that span the globe and provide our clients with a valuable talent pipeline for the future. We recognise the high cost and shortage of skills many clients face when applying mandatory regulations to ensure compliance across the prevention of money laundering, financial crime and combating the financing of terrorism.

The FDM Risk, Regulation and Compliance (RRC) training focuses in particular on developing the critical understanding of handling sensitive information and high profile projects in line with best practice.

We’ve broken down some of the unfamiliarity’s that are used continuously in RRC. Read on to have a better grasp of certain phrases and legislation that make up the crucial area of Risk Regulation and Compliance.

KYC – Know Your Client

KYC is a process that businesses undergo in order to find out the true identity and motives of their customer/client. The main purpose for the vigorous steps of the KYC process is to attempt to prevent acts such as financial fraud, terrorist financing, money laundering and identity theft.

AML & DD – Anti-Money Laundering & Due Diligence

AML is predominately used in the financial and legal industries to describe the regulatory controls that financial and other regulated institutions or individuals use to prevent, detect and report money laundering activities. DD is how an institution checks that their prospective client/customer is who they say they are and assess the potential risks that the person or entity could bring to the business. These risks are usually regarding money laundering and terrorist financing.

MLD 1,2,3 or 4 – European Anti-Money Laundering Directive

The First Money Laundering Directive was introduced in 1991 in response to growing concerns that the developing financial system, as well as professionals that work in that system, could be used for criminal purposes and money laundering activities. This Directive established counteractive methods (such as KYC) and other measures to report mistrustful transactions. The Second Directive adopted a broader definition of money laundering by plugging any gaps that the First Directive left out, including the regulation of authorities and investment firms. The Third Directive applied the regime to lawyers, accountants and company services, and also included measures against the financing of terrorism. The Fourth Directive covered the Risk-Based Approach, Politically Exposed Persons (PEPs), Beneficial Ownership and Tax Crimes.

EU’s 5th Anti-Money Laundering Directive – A New Space

In July of 2018, the European Commission added the fifth Directive as a result of the publication of several high-profile money laundering cases. Often, money laundering is possible through the creation of a ‘shell company’ to funnel money through that exists only on financial records. This Directive established a public register of these companies and their owners in order to reduce the use of these ‘on-paper-only’ companies, as the public register will expose them to public scrutiny. The Directive also uses extensive digital verification methods to guarantee the absence of manipulation of the registered records.

Sarbanes-Oxley 2002 (SOX)

This US Act was a response to the occurrence of major public corporations and accounting scandals, such as Enron and WorldCom. The Act now requires top management to individually certify the accuracy of financial information relating to the firm, aiming to increase accountability.

FATCA – Foreign Account Tax Compliance Act

This is a piece of United States legislation developed to detect and deter tax evasion by US taxpayers through non-US financial institutions and offshore investments. FACTA may be a US regulation, but its impact reaches across the globe. At FDM, we ensure our RRC Analysts are on top of the latest compliance rules around the globe. As new administrations come in and out of offices, these rules will constantly be changing. It is up to us, the businesses of the world, to ensure we’re always up to date.

Looking to pursue a career in Risk, Regulation and Compliance? See more about our business streams today.

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