FROM POLICY TO PRACTICE   (AML/CFT/PF Effectiveness - A new Trend or a Solution?)

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A greater emphasis on effectiveness has the potential to materially change the value of AML/CFT/PF compliance for an Accountable Institution. Properly applied, an effectiveness-based and risk-based approach shifts the question from “Have we implemented all the required controls?” to “Are the controls we have implemented actually mitigating the risks that matter?” This creates an opportunity to eliminate unnecessary or duplicative processes, simplify measures in demonstrably lower-risk areas, and concentrate people, technology and expenditure on the risks that require greater intervention. FATF itself recognises that the risk-based approach enables more efficient and cost-effective use of resources, while the FIC permits differentiated levels of due diligence according to assessed risk. The real operational value of effectiveness is therefore not simply better compliance, but the ability of the AI to achieve better risk outcomes with more proportionate use of resources and potentially lower compliance friction and cost.

For an Accountable Institution, the real value of an effectiveness-based approach may lie in its ability to support control rationalisation. AML/CFT/PF frameworks have historically tended to grow incrementally as new requirements, risks and regulatory expectations emerge, often resulting in additional procedures, approvals, monitoring rules and documentation being layered onto existing controls. An effectiveness approach provides a basis for asking whether each of these controls continues to make a meaningful contribution to the mitigation of identified risk. Controls that are demonstrably effective can be strengthened, while those that are duplicative, unnecessarily resource-intensive or contribute little additional risk mitigation can potentially be redesigned or simplified. This does not necessarily mean less compliance; rather, it means directing compliance expenditure, technology and human capacity towards the controls that produce the greatest risk-mitigation value. In this sense, effectiveness can become an important mechanism for moving from more controls to better controls, and from compliance expenditure based largely on activity to expenditure based increasingly on risk and outcomes.