The Problem of AML Model Validation

Author: Reema Al-Rabea, CAMS-Audit

Anti-money laundering (AML) violations and enforcement actions have hit the headlines so often these past two decades that the attention of senior management and board members on AML/compliance risk management has been triggered. Still, businesses do struggle to satisfy regulatory requirements and face fines, penalties and enforcement actions.

Regulators and international standards agencies like the Financial Action Task Force (FATF) provide the requirements and guidelines with respect to AML/compliance risks, including that of AML/compliance risk management models. One of the most important principles that many firms have failed to satisfy the regulator on is the validation of AML models. Many questions were raised whether financial institutions I are managing their AML risks adequately and efficiently and how the risk mitigation was verified and validated.

This white paper has as objective to help BSA/AML personnel to address the most common challenges faced with examiners regarding the validation of AML models.

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