World Council of Credit Unions has urged the Financial Action Task Force to reduce unnecessary compliance burdens on credit unions by providing increased clarity on the relative risks posed to global anti-money laundering efforts by common retail credit union and banking services.
WOCCU’s Jan. 13 comment letter to the Paris-based international organization was written in response to six questions posed by FATF to private sector financial institutions seeking clarification of its anti-money laundering requirements. Answers to those questions are designed to provide input for revisions to specific sections of FATF’s “Guidance on the Risk-Based Approach to Combating Money Laundering and Terrorist Financing,” first published in 2007, as well as clearer guidance for local authorities charged with upholding AML statutes.
The limited threat posed by credit unions is not accurately reflected in the level of AML enforcement most institutions face, the letter said. FATF needs to provide greater clarification with respect to a statement where risks are low, simplified or reduced controls may be applied, according to Michael Edwards, WOCCU’s vice president and chief counsel who authored the letter.
“Clearer guidance at the international level on the risk-based approach will also help give credit unions flexibility to direct their compliance resources to the areas of highest money laundering and terrorist financing risk,” Edwards said.
Credit unions’ roles as member-owned institutions limited by common bond requirements reduce the risk of outside usage of the institutions for money-laundering and terrorist-financing purposes. The fact that credit unions in many countries know their members personally and are part of the communities in which they operate make it easier to spot signs of illegal activity, furthering reducing the risks they pose, the letter explained.
The letter also urged FATF to address correspondent banking, especially with respect to revised FATF Recommendation 10 (Customer due diligence) and Recommendation 17 (Reliance on third parties) which make banks or credit unions responsible for due diligence on its customers’ customers. Closures of credit union correspondent accounts without explanation by banks in Great Britain and the U.S. may have been an unintended result of these and other such requirements.
“We believe that these account closures are likely the result of a combination of new regulatory requirements on banks, including the FATF’s revised Recommendations 10 and 17, as well as the Basel III liquidity rules,” the letter said. “Providing additional guidance on the RBA for correspondent banking relationships, especially with respect to customer due diligence, would help credit unions maintain access to bank services.”
FATF will be using the comments from this consultation to make draft changes to the 2007 guidance paper, Edwards said. The organization will convene in Brussels at the end of March to discuss those draft changes and engage in further consultations with the private sector.