Specialised Solutions for Custodians’ AML/CFT Compliance Management

We offer a comprehensive set of anti-money laundering (AML), counter-terrorist financing (CFT), and fraud prevention solutions for custodians' anti-money laundering obligations that are tailored to applicable AML/CTF (aka CTF) laws, regulations, sector-specific red flags and indicators and AML/CTF supervisors’ guidance covering AML/CFT compliance requirements for different types of custodian businesses and institutions, to help your business meet applicable obligations that include custodians' money laundering and terrorist financing risk mitigation, detection, and handling of other types of financial crime.

We have designed our AML solutions to help you navigate the complexities of custodians’ AML requirements in a commercially oriented and goal-focused manner, providing effective AML/CTF support for all aspects of custodians’ AML anti-money laundering compliance, including but not limited to:

• Business Profile and Strategic Factors:
• Your commercial objectives
• Your products
• The size and structure of your business
• Your available AML/CTF compliance technology and resourcing
• Your risk appetite for AML/CTF-related risks
• Your governance framework and reporting lines
• Your client demographics
•  Your countries of operation

 

• Applicable Regulatory and Fraud Prevention Obligations:
• AML/CTF regulations for custodians
• Any custodians’ fraud prevention obligations or expectations your business may be subject to
• Any related compliance obligations, including, but not limited to, custodians’ obligations under:

• Privacy laws
• Financial market laws
• Fair trading laws
• Financial licensing requirements
• Other relevant regulatory frameworks

• Operational AML/CTF Compliance Requirements:

• Money laundering and terrorist financing (ML/TF) risk assessment
• AML risk management
• Customer due diligence (CDD) and Know Your Customer (KYC) obligations for custodians
• Enhanced customer due diligence
• Ongoing customer due diligence and transaction monitoring
• PEP identification and sanctions compliance
• Staff vetting and AML/CTF training
• Ad-hoc and periodic reporting
• Other obligations relating to custodians’ anti-money laundering, counter-terrorist financing and sanctions compliance, as well as financial crimes prevention

 

 

What Jurisdictions Do Our Custodian AML Solutions Cover?

• Australia: Where custodians are supervised by the Australian Transaction Reports and Analysis Centre (AUSTRAC) under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 and AML/CTF Rules.
• New Zealand: Where custodians are supervised by the Financial Markets Authority (FMA) under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009.
• United Kingdom: Where custodians are supervised by the Financial Conduct Authority (FCA) under the Money Laundering Regulations 2017 and their subsequent amendments and other relevant FCA AML/CFT guidance.
• United States: Where custodians are supervised by the Financial Crimes Enforcement Network (FinCEN) under the Bank Secrecy Act and USA Patriot Act.
• European Union: Where custodians are supervised by the European Banking Authority (EBA) and National Competent Authorities (NCAs) under the Sixth Anti-Money Laundering Directive (AMLD6), with national laws transposing the Directive.
• Singapore: Where custodians are supervised by the Monetary Authority of Singapore (MAS) under various AML/CFT laws, including the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act, along with MAS AML/CFT Notices and Guidelines.

 

 

Which Types of Custodians Do We Support?

Focusing on money laundering (ML), terrorism financing mitigation (TF) and fraud prevention, our custodians' AML solutions cover the following types of custodian service providers and custodian institutions that are deemed to be AML/CTF designated service providers (aka “reporting entities”):

• Asset Custodians
• Fund Custodians
• Trust Custodians
• Securities Custodians
• Real Estate Custodians
• Digital Asset Custodians (Cryptocurrency Custodians)
• Private Equity Custodians (if applicable)
• Other financial institutions and businesses subject to the custodians’ AML requirements

 

Custodians’ AML Advisory and Support

Our AML/CFT advisory services for custodians include, but are not limited to, the following:

• Detailed AML/CTF compliance advice: Tailored to the custodians’ AML requirements for different processes, including but not limited to customer due diligence (CDD), transaction risk scoring, transaction monitoring, customer onboarding and know-your-customer (KYC) analysis, and other AML processes. Also tailored to the specific money laundering and terrorist financing (ML/TF) risks involved in these processes, helping you with effective ML/TF risk management.
• Custodians' fraud risk management advice: Advising on measures, controls, and processes for detecting, preventing, and responding to different types of fraud, scams, and other types of financial crime relevant to custodians. Also, tailored to custodians’ fraud environment, risk management practices, and stakeholders' expectations and obligations (banks, regulators, insurers, shareholders, etc.).
• Banking relationships advice: Advising custodian service providers on AML/CTF issues related to maintaining and expanding their banking relationships, complying with banks' AML/CTF risk appetite standards, recall procedures and expectations, and other operational requirements.
• Operational AML/CTF advice: Advising support and KYC teams on day-to-day onboarding, support queue management processes, allocating AML/CFT resources effectively, and making operational improvements to enhance overall customer experience and AML compliance efficiency.
• Specific matter advice (difficult clients, high ML/TF risk matters, customer due diligence for high-net-worth clients, complex transactions and more): Advising on handling specific AML/CTF issues related to clients and complex and unusual transactions, including assessing the adequacy of Sources of Wealth (SOW) or Source of Funds (SOF) information and documentation for specific enhanced due diligence (EDD) cases.
• Peer benchmarking and best practices: Helping custodians compare their AML/CFT practices with industry standards, AML/CTF supervisor guidance, and internationally recognised best practices set up by international organisations like the Financial Action Task Force (FATF) for complying with custodians' AML/CFT obligations.
• Government agencies liaison advice: Advising senior management and compliance teams on handling relationships with external bodies, including AML/CTF supervisors and law enforcement agencies, such as the FIU or its local equivalents.
• AML/CFT audit advice: Advising senior management and compliance teams on matters related to the statutory AML/CFT audits, including auditors' guidelines, requirements, AML/CFT audit process, and obligations related to the audit's outcome, tailored to both generic custodians’ anti-money laundering compliance obligations and your specific situation.
• AML/CFT remediation advice: We help custodians to effectively navigate situations involving an AML/CFT breach, warning, or investigation. The cost of non-compliance can result in significant regulatory fines and penalties, as well as irreparable reputational damage. Therefore, when you are on your supervisor's radar, it’s essential to have AML/CFT advisors who know how to set things right and effectively engage with AML/CFT supervisors and other stakeholders. For more details, please visit our Remediation Solutions page.
• Further information: You can visit our AML advisory page for an extensive list of AML/CFT advisory services we offer to support custodians' anti-money laundering compliance, as well as AML/CFT compliance for other types of financial institutions and businesses subject to the AML/CFT regime.

 

AML/CFT Training and Capacity Building

We offer the following set of AML/CFT training and education solutions tailored to custodians' AML/CFT compliance requirements:

• Customised AML/CFT Training Solutions: Specialised AML training sessions for various teams, including management, compliance, operations, sales, and customer relations, focusing on the custodians' AML requirements, AML/CFT awareness, best practices, and ML/TF red flags.
• Up-to-date Regulatory AML Updates: Keeping your compliance officers, managers, and teams updated with changes in the custodians' AML requirements, AML regulations and guidance.
• Workshops on Emerging Trends and Red Flags: Advising on new AML trends, red flags, and typologies relevant to custodians’ money laundering, terrorist financing, fraud, and other types of financial crime.
• Practical Workshops: Interactive workshops for effective and goal-oriented AML/CTF compliance, capacity planning, and resource allocation, covering:

• KYC procedures for custodians
• KYB analysis and ML/TF risk assessment application to specific clients, transactions and situations
• The custodians’ money laundering risks, common money laundering schemes and terrorist financing methods
• Improvements in clients' onboarding and transaction monitoring procedures
• Reg-tech for AML compliance
• Internal and external AML/CTF reporting
• Related risk and compliance issues, including financial crime prevention
• Application of the risk-based approach to custodians’ money laundering, fraud risks, and terrorism financing
• Suspicious matter reporting guidelines
• The implementation of customer identification programs and KYC procedures
• Strategic and operational ML/TF risk management
• AML/CTF specifics of the cross-border custodial services
• Other obligations related to the custodians’ AML requirements

• Practical Compliance Applications: Ensuring the practical application of training, focusing on real-world custodians’ money laundering, terrorist financing, and common custodians’ fraud scenarios, as well as specific challenges related to the custodians’ AML/CTF compliance that your business is likely to face.
• Further information: You can visit our AML training solutions page for an extensive list of AML/CFT training solutions we offer to custodians and other businesses subject to AML/CFT regulations.

 

Comprehensive AML/CFT Managed Solution for Custodians

Our custodians' AML/CFT compliance management solutions include but are not limited to:

• AML/CFT Compliance Leadership: We act as your dedicated AML/CFT compliance officers (aka “Money Laundering Reporting Officers” or (MLROs)) and as compliance managers, fully managing AML/CFT compliance and handling the custodians’ anti-money laundering obligations for your business.
• Custodians' Anti-money Laundering Risk Management: Conducting detailed assessments to identify ML/TF risks, assess their inherent impact and likelihood of occurrence for your business, evaluate the effectiveness of mitigations and controls in place, and formulate residual risk ratings.
• Managing Client Onboarding Process and Customer Due Diligence: Implementing effective Know Your Customer (KYC), Know Your Business (KYB), customer due diligence (CDD), and enhanced due diligence (EDD) processes, for all types of clients, including higher ML/TF risk clients.
• PEP and Sanctions Screening: Managing thorough compliance with AML surveillance requirements by screening against global sanctions and politically exposed persons (PEPs) lists. This covers both initial and ongoing screening, as well as escalation processes for true positives.

• UBO Verification Streamlining: Verification of beneficial ownership in line with the custodians’ AML requirements, identifying and assessing individuals who hold ultimate control over assets. This includes initial and ongoing checks, with procedures to address discrepancies and high-risk cases as they arise.
• AML Transaction Monitoring: Developing and implementing a set of business-specific ML/TF alerts and red flags to detect and report suspicious transactions, helping you comply with the custodians’ AML requirements in a commercially efficient manner without making AML/CFT compliance a business hindering factor.
• Transaction Monitoring and Custodians’ Fraud Prevention Solution: Related to the above, we also help with the implementation of fraud alerts and red flags to detect, prevent, and respond to fraudulent transactions and activities.
• AML/CFT Tech Handling: Leading the alignment of AML/CFT technology implementation with your business processes and AML/CFT objectives. This also includes reviewing AML/CFT technology against the custodians’ AML requirements and your core policies and procedures.
• AML/CTF and Data Sharing: Handling information requests from law enforcement agencies, AML/CTF supervisors, and other relevant AML/CTF-designated entities—such as your banking partners, FX platforms, liquidity providers, finance providers, etc.—to help you manage your AML/CTF compliance-related communications.
• Internal AML/CFT Reporting Solutions: Facilitating structured reporting workflows for your board and its delegate committees, with a specific focus on AML/CFT compliance. This includes:

• preparing and presenting comprehensive AML/CFT performance metrics
• providing insights into AML/CFT compliance effectiveness
• reporting on the effectiveness of internal controls and mitigations for your general AML/CFT obligations and the sector-specific custodians’ money laundering risks
• identifying areas for improvement

Our AML/CFT compliance reports cover:

• your ongoing compliance status in relation to custodians’ AML requirements
• ongoing progress against your organisation-wide AML/CFT compliance calendar
• alignment of your business's AML/CFT performance with specific project goals and relevant KPIs
• other factors to ensure that the management function is well-informed and aligned with the AML/CFT compliance requirements for custodians.

• Custodians’ AML/CFT Compliance and Externally Reportable Matters: Implementing effective external reporting procedures to help you comply with custodians’ anti-money laundering requirements for reporting captured activities and transactions. This includes managing externally reportable matters covered by the following report types: Suspicious Activity Reports (SARs), Suspicious Matter Reports (SMRs), Suspicious Transaction Reports (STRs), Prescribed Transaction Reports (PTRs), Threshold Transaction Reports (TTRs), and their equivalents.
• Periodic AML/CFT Reporting: Organising and overseeing the preparation, data storage, and effective submission of required periodic reports to your AML/CTF supervisors, helping you comply with custodians’ AML requirements for statutory reporting.
• Custodians’ Fraud Prevention Management: Implementing targeted fraud prevention measures, enhancing internal controls, and helping you comply with internal policies and external regulations. We work to mitigate fraud risks without disrupting business processes, aligning fraud prevention efforts with your broader compliance objectives.

 

 

KYB Solutions for Custodians’ Anti-money Laundering Compliance

We offer a range of KYB solutions to help you effectively comply with custodians' AML requirements. These include:

• Establishing ML/TF risk scoring models and parameters for different risk categories: We establish criteria to assess the ML/TF risk levels of your client base by identifying key risk factors based on their business nature, activities, jurisdictions, and other relevant characteristics and develop a risk scoring model to classify clients into different ML/TF risk categories such as low, medium, and high risk.
• Implementing a Customised KYB Process: We can help you roll out the KYB process across all departments to help your teams become sufficiently trained and equipped to handle clients' ML/TF risk effectively when it comes to verification, monitoring, ongoing due diligence, and other processes.
• KYB Technology and Automation: We select and evaluate technologies that can automate various parts of the KYB process, such as data collection, risk scoring, sanctions screening solutions, and ongoing monitoring.
• KYB-Related Escalation Process: We can develop and implement a clear escalation procedure for handling high-risk clients or irregularities, including the triggers for escalation, the actions required at each step, and the responsibilities for resolving these issues.

 

 

Core Policies and Procedures for Custodians’ AML/CFT Compliance

We develop, enhance, and implement a set of core policies, manuals, frameworks, and procedures for effective custodians' AML/CFT compliance management, including the following:

• Custodians' AML/CFT Framework Development: Covering specific custodians' AML requirements and obligations under national AML/CTF laws and regulations, any applicable AML/CFT guidance, your risk appetite, your existing human and technology resources, your business structure, your history of AML/CFT compliance, and your current and future business goals.
• AML/CTF Risk Assessments: Focused on the custodian's AML requirements for risk management as they relate to specific ML/TF risks faced by your business in terms of its size, products, client types, jurisdictions of operation, delivery channels, and the financial institutions it interacts with when delivering its services. Also covering the assessment of the effectiveness of existing controls and mitigations in place to determine the residual risk rating for both general ML/TF risks relevant to the most designated service providers/AML/CFT reporting entities and industry-specific ML/TF risks faced by custodians as these apply to your business operations. Visit our AML/CTF Risk Assessment page for more information.
• Comprehensive AML/CTF Programs (aka "AML/CFT Programme" in some jurisdictions): When it comes to custodians’ anti-money laundering compliance, your AML/CFT program is a core document that details how your business complies with various compulsory AML/CFT obligations, covering:

• the initial and ongoing CDD and EDD processes
• verification methods and requirements for identity, address, and source of funds
• internal and external reporting
• ongoing due diligence
• transaction monitoring
• employee vetting and training
• PEP and sanctions screening, and more

Our custodians’ AML solution is about grounding your AML/CTF program in reality and developing it based on your circumstances, including:

• your AML/CFT Risk Assessment
• your available ML/TF systems and controls
• your available resources
• your compliance budget
• your AML/CTF compliance team's experience and size
• your stakeholders' interests
• your available AML technology and other relevant factors
• Further Information: Visit our AML/CTF Programs page for more information.

• Custodians' AML/CTF Procedures for Effective AML Compliance: Effective procedures are another core pillar of custodians’ AML/CTF compliance. This is why our solutions cover the development and enhancement of a detailed set of AML/CTF procedures and protocols to meet the distinct needs of your business, with a focus on effective AML risk management across various business processes and the custodians’ AML requirements as they apply to each step of your customer journey.
• AML Manuals and Guidelines: These are more detailed, practical resources that support the procedures by providing step-by-step instructions, specific reference points, and standards. Depending on your business size and complexity, we develop and enhance internal manuals and guidelines necessary for effective and efficient AML/CTF compliance. These include AML Operating Manuals, guiding materials, and guidelines that outline what to do for each process, step, or decision within your procedures.
• ML/TF Controls Mapping: Implementing controls based on your documented risks is another cornerstone of custodians' anti-money laundering compliance. We help you develop, map, and assess your internal ML/TF controls and improve their effectiveness to ensure compliance with custodians' AML requirements, address specific financial crime, money laundering, and terrorist financing trends, and respond to any findings from internal and external AML/CFT auditors and supervisors.
• AML Red Flag Identification and Response Protocols: This is another area where a well-written AML policy or program must face the reality of operational speed, the workload across different teams, available tools, client base size, and other factors. That is why another part of our custodians’ AML/CFT solution focuses on developing clear guidelines for identifying and responding to red flags indicative of fraud, money laundering, or terrorist financing activities, enabling you to take timely and appropriate action in different circumstances.
• AML/CTF Policy Update: Assisting with the review and enhancement of your core AML/CTF documents and operational procedures to reflect changes in your AML policies, including those caused by:
• updates in the AML/CTF laws, custodians’ AML regulations or AML supervisors’ sector guidance
• internal changes in your business structure, size, and resources
• the launch of new products or expansion to new jurisdictions
• changes in your risk appetite
• changes in related obligations, such as privacy laws, information sharing, custodians’ fraud prevention requirements, and more
• AML/CFT issues identified during internal or external reviews or audits
• other relevant factors

 

AML/CFT Technology Integration Support

Streamlining AML Compliance: Our custodians' AML solutions include needs assessment and assistance in selecting and integrating appropriate AML technologies for efficient custodians' anti-money laundering compliance management. This includes AML compliance technologies and tools that cover:

• Customer Due Diligence Automation
• E-KYC and Online Identity Verification
• Customer Onboarding Streamlining
• PEP and Sanctions Screening
• Ultimate Beneficial Owner (UBO) identification,
• KYB Solutions and AML/CFT Risk Management
• AML Alert Management
• Ongoing Due Diligence Obligations Management
• Internal AML/CFT reporting
• Custodians' AML/CFT Obligations for External Reporting
• AML/CFT Incident Management
• Exception Escalation and Management
• AML/CFT Management Automation: Including, automated response workflows, and AI technology
• Customisable AML/CFT measures specific to onboarding and monitoring of your high ML/TF risk clients
• Custodians' AML/CFT obligations for Record-Keeping
• Custodians’ Fraud Prevention
• Transaction Monitoring and Surveillance: Including transaction monitoring tools to automate detection and response to custodians’ money laundering and terrorist financing red flags
• Effective CRM for handling Custodians' AML requirements

 

 

Custodians’ AML/CFT Audit Solutions

Having over ten years of AML/CFT compliance experience, ranging from AML/CFT framework and controls development and testing to successful AML/CFT management and issues resolution for various reporting entities, gives us the necessary expertise and qualifications to be your AML/CFT auditors.

We offer two comprehensive AML/CFT audit options to review your compliance with custodians’ anti-money laundering obligations. These options are:

Statutory AML/CTF Audit Option: A comprehensive review of your existing AML/CTF framework to assess whether your business complies with AML/CTF standards and applicable obligations. We independently test your compliance with both local AML/CTF obligations and specific custodians' AML requirements. These often include but are not limited to:

• adherence to your AML/CTF risk assessment and operational AML/CFT procedures, including the existence of controls and mitigations to address money laundering and terrorist financing risks identified in your risk assessment
• compliance with your core AML/CFT documents, including sample testing
• your CDD requirements
• your staff vetting requirements
• your AML/CFT management processes
• your client onboarding and offboarding processes
• your EDD requirements, including source of wealth (SOW) and source of funds (SOF) requirements and application of the risk-based approach to different ML/TF risk levels
• your transaction monitoring process, covering large, complex, and unusual transactions and patterns
• your ODD processes
• your record-keeping process
• your suspicious matter reporting process (also known as "suspicious activity" or "suspicious transaction" reporting in some jurisdictions)
• your other reportable transactions process (typically covering cash and cross-border transactions)
• the way you detect and address material changes in client relationships
• your initial and ongoing screening process
• and other obligations for custodians’ AML/CFT compliance

 

Assurance Levels: Our statutory AML/CFT audit options are available as both:

• A limited assurance audit
• A reasonable assurance audit

Further Information: Please visit our AML/CFT Audit page for more information.

Internal AML/CFT Audit Option: Apart from an independent statutory audit, we also offer an internal AML audit option to prepare custodians for an external audit by an independent auditor, an AML/CTF supervisor's review, or a review by another significant business stakeholder, such as a banking partner or an equity purchaser. This option is also suitable for significant business events like reorganisation or expansion.

Here, we go beyond merely meeting custodians’ AML requirements and focus on evaluating the effectiveness of your AML/CFT controls and ML/TF risk management processes for alignment with:

• the ML/TF risks faced by your business, including your Know Your Business (KYB) analysis
• custodians’ anti-money laundering compliance obligations
• your current and future goals
• your business model
• your current and prospective client inflow
• the specific AML/CFT compliance areas or requirements (this audit process can be tailored to address particular AML issues or compliance areas, ensuring a targeted approach to custodians’ anti-money laundering compliance)

We help you not only identify any gaps and weaknesses but also provide insights on how to enhance your controls and respond to these in a commercially oriented manner for smarter AML/CFT compliance. Please visit our Internal AML/CFT Review Solution page for more information.

AML/CFT audit-related solutions

• Post-Audit Remediation Support: We assist with the implementation of post-audit remediation actions, addressing and resolving any identified AML/CFT issues.
• AML/CFT Attestation Support: Our custodians’ AML solutions include helping you prepare the required attestations for your AML/CFT supervisor and other stakeholders. This involves confirming that all necessary remedial actions have been completed and that adequate AML/CFT compliance measures have been put in place.
• Post-Audit Stakeholders' Liaison: We manage your communications with national AML/CTF supervisors, banks, auditors, insurers, and other stakeholders, ensuring smooth progress in reporting on the status and completion of your post-audit action plan.

 

Custodians’ Fraud Prevention Solutions

The custodians' anti-money laundering control environment is closely related to prevention of financial crime in general, and fraud prevention in particular. Custodians' fraud prevention controls and ML/TF controls can form a unified compliance management framework tailored to the specific ML/TF and fraud risks your business is facing or is likely to face.

 

Our Custodians’ Fraud Prevention Solutions include:

• Fraud Risk Assessment and Analysis: Conducting assessments to identify and prioritise fraud risks across your operations, allowing you to allocate resources effectively.
• Incident Response and Investigation: Creating response plans to manage fraud incidents, including guidelines for investigating, documenting, and applying corrective actions to minimise potential damage.
• Implementing Preventive Measures: Setting up checks, alerts, and controls to tackle fraud risks in the custodian sector, as well as drafting a set of procedures and guidelines to address fraud scenarios that you are likely to face or have faced.
• Data Analytics for Fraud Detection: Leveraging data analytics to identify focus points for your fraud prevention efforts and areas for improvement.
• Fraud Detection Technology Implementation: Choosing and helping you implement appropriate technology for real-time fraud detection.
• Fraud Awareness Training: Educating staff about fraud risks, including identity theft and impersonation.
• Further information: Please visit our Fraud Management Solutions page for more information.

 

Custodians' fraud response requirements: In the current risk and compliance environment, implementing fraud prevention measures is either already mandated by law in some jurisdictions or, at minimum, expected by government agencies, financial market participants, and other stakeholders.

 

Broader Risk & Compliance Solutions for Custodians

Your AML/CFT compliance is generally more effective when the right hand knows what the left hand is doing, and at the very least, they do not interfere with each other. Incorporating your controls and procedures for compliance with the custodians’ AML requirements into an overall risk and compliance management framework efficiently, can increase your overall risk compliance effectiveness. This is where our experience can help you. Apart from AML/CFT compliance solutions for custodians, we include the following risk and compliance solutions:

• Compliance Advisory and Management: A comprehensive set of solutions for second-line compliance management, including both compliance advisory and compliance management options. Visit our Compliance Solutions page for Custodians for more information
• Third-line Compliance Assurance: A range of third-line compliance defence solutions covering compliance assurance program development and implementation, internal controls design, and controls testing solutions
• ISO Standards Compliance: A range of solutions for compliance with the International Organization for Standardization (ISO) standards, helping you prepare for ISO certification
• FATCA and CRS Compliance: A comprehensive set of solutions for complying with the Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS) requirements, including tax residency verification, ongoing due diligence, reporting, and record-keeping
• Privacy Law Compliance: A range of solutions covering development, implementation, and testing of data privacy controls, procedures, and tools required to meet the applicable obligations under the Privacy Act, the GDPR, ISO 27701, etc.
• Financial Licensing and Registration: A set of financial licensing solutions for custodians, including preparation, licensing process management, regulator liaison, and post-licensing support in:

• Australia
• The United Kingdom
• The United States
• Singapore
• Offshore financial centres and tax havens
• New Zealand

 

Common Money Laundering Risks for Custodians

Custodians' money laundering risk types can be broadly classified into five categories:

• Product types (services offered)
• Delivery methods
• Customer types
• The institutions involved in delivering your services
• Jurisdictions of operation

 

Given the variety of products offered by different businesses, as well as their different business structures and operations, the examples below of money laundering risks faced by custodians represent only a sample and are not exhaustive.

Product-Related Risks and Custodians’ AML Compliance

Some of the product-related ML/TF risks relevant to custodians' anti-money laundering compliance include:

• Inadequate Monitoring for Large, Complex, and Unusual Transactions: Failure to identify and scrutinise large, unusual, or complex transactions, particularly involving cross-border transfers or transactions without clear economic rationale.
• Inefficient ML/TF Risk Assessment Application: Lack of a detailed analysis of customer-related ML/TF risk types and lack of triggers, alerts and protocols to detect groups of clients with higher ML/TF risks and apply appropriate AML/CFT measures to their accounts. Such groups can involve offshore tax haven-based corporate clients, entities with beneficial owners in higher ML/TF risk countries, trusts, and limited partnerships (securities custodians, digital asset custodians).
• Failure to detect circumstances when Verify SoW and SoF are needed: Lack of controls to detect clients and transactions where SoW or SoF need verification as related to ML/TF risks faced by the business. For example, funds originated from higher ML/TF risks industries, countries, etc (fund custodians, trust custodians).
• Weak Controls for Digital Asset Custody: Insufficient monitoring tools, such as blockchain analytics and transaction tracking, limit custodians’ ability to detect illicit activity, including layering funds through unregulated exchanges, anonymous wallet transfers, or mixing services (digital asset custodians).
• Inflated property valuations: Transactions involving inflated property valuations or repetitive transfers create vulnerabilities, particularly in jurisdictions with poor AML oversight (real estate custodians).
• Third-Party Payments and Withdrawals: Insufficient scrutiny of transactions initiated by third parties or involving unrelated accounts creates opportunities for layering and obfuscation of illicit funds (corporate custodians, trust custodians).
• Commingling of Funds in Custody Accounts: Failure to identify and mitigate risks associated with the commingling of funds from unrelated parties in pooled accounts creates vulnerabilities for layering illicit funds (fund custodians, asset custodians).

 

 

Jurisdictional Risks and Custodians’ AML Compliance

Some of the jurisdictional risks relevant to custodians' money laundering prevention include:

• Sanctions Screening Tools Integrating with Platforms: Failure to integrate sanctions screening tools effectively, ensure timely initial and ongoing screening, apply automated measures to identified accounts, and link ongoing due diligence protocols to flagged accounts.
• Failure to Detect and Address Transactions Involving Higher ML/TF Risk Jurisdictions: Lack of mechanisms to monitor and investigate transactions tied to clients or entities operating in jurisdictions with elevated ML/TF risks.
• Weak Risk Assessment for Offshore Entities: Failure to assess customers or beneficial owners connected to jurisdictions known for offshore banking or tax evasion vulnerabilities.
• Failure to Tailor AML Policies Across Multiple Jurisdictions: Ineffective coordination of AML/CFT compliance frameworks for operations across regions with differing regulatory requirements, leading to potential compliance gaps.
• Inadequate Risk Assessment for Capital Flight-Prone Countries: Absence of due diligence measures to evaluate transactions linked to jurisdictions known for significant capital flight activity

 

Delivery Method Risks and Custodians’ AML Compliance

Some of the service delivery method-related ML/TF risks relevant to custodians' anti-money laundering compliance include:

• Remote Onboarding Without Effective EKYC Measures: Failure to implement effective systems to link client-provided documentation with verified identities during remote onboarding processes.
• Risk of Weak Segregation in Multi-Tier Custodial Structures: Inadequate controls to ensure segregation of accounts in multi-tiered custody arrangements, such as sub-custody or omnibus accounts, can obscure the beneficial ownership of assets, complicate transaction monitoring (asset custodians, securities custodians).
• Absence of Integrated Monitoring Across Multiple Channels: Lack of integration between different service channels (e.g., online platforms, mobile apps, and in-person services).
• Weak Security Controls for Third-Party Interfaces: Insufficient security measures for third-party financial platforms or APIs can allow unauthorised access. This includes risks such as fund diversion, fraudulent transactions, and obscured flows of illicit funds through interconnected systems
• Inadequate Screening for Transactions Through Informal Money Networks: Lack of mechanisms to detect deposits and withdrawals routed or going to informal value transfer systems (IVTS), such as hawala networks.
• Overreliance on Automated AML/CFT Systems Without Human Oversight: Custodians relying exclusively on automated compliance systems without:

• effective escalation process to AML/CFT specialists; and
• regular human control testing, review and adjustments

 

Customer Type Risks and Custodians’ AML Compliance

Some of the customer type-related ML/TF risks relevant to custodians' money laundering prevention include:

• Failure to Identify Clients Requiring Enhanced Due Diligence (EDD):
  Weak controls to identify clients who require EDD measures under AML/CTF laws or internal protocols.
• Inadequate Application of Ongoing Due Diligence (ODD): Failure to implement effective monitoring for KYC refresh.
• Undisclosed Beneficial Ownership Changes: Related to the above is having weak controls to detect and respond to changes in beneficial ownership or account control, particularly for trusts and corporate custody accounts (trust custodians, fund custodians).
• Failure to Identify Politically Exposed Persons (PEPs) or Sanctioned Individuals:
  Insufficient measures to screen for PEPs or individuals under sanctions.
• Accepting High-Risk Industry Clients Without Adequate Due Diligence: Lack of thorough due diligence for clients operating in industries with higher ML/TF risk, such as cryptocurrency, offshore banking, or gambling.
• Use of Nominee Accounts: Absence of mechanisms to scrutinise nominee accounts, allowing hidden beneficiaries to misuse custodial services for ML/TF purposes.
• Non-Resident Clients from Higher ML/TF Risk Jurisdictions: Insufficient due diligence measures to verify the legitimacy of funds and source of wealth for non-resident customers linked to higher ML/TF risk jurisdictions, particularly those attempting to bypass foreign currency control laws, tax laws, or AML oversight.

 

Institutional Risks and Custodians’ AML Compliance

Some of the institutional risks relevant to custodians' anti-money laundering compliance include:

• Delegation of Onboarding to Third Parties Without Oversight: Failure to monitor and enforce AML/CTF compliance standards among third-party agents or affiliates conducting customer onboarding.
• Engagement with Unregulated Financial Entities: Lack of controls to assess and mitigate risks when partnering with unregulated investment platforms, external payment processors, or informal networks.
• Absence of Screening for Adverse Media on Partner Institutions: Inadequate mechanisms to monitor adverse media coverage related to financial crimes or compliance failures in partner institutions.
• Failure to Mitigate Risks Linked to Gatekeeper Professionals: Lack of controls to detect and address risks posed by gatekeeper professionals, such as accountants or lawyers, acting as intermediaries or using client trust accounts to facilitate transactions.
• Inadequate Due Diligence on Clearing or Settlement Institutions: Failure to assess the AML/CTF compliance of financial institutions used for clearing, settlement, or fund transfers

 

 

Common Anti-Money Laundering Requirements for Custodians

Given the number of custodians' AML requirements, the following list is not exhaustive:

• Conducting customer due diligence, including appropriate KYC checks: Ensuring verification of customers’ identities, as well as identities of beneficial owners of customers that are legal entities.
• Conducting transaction monitoring: Monitoring deposits, withdrawals, and other transactions to identify and report suspicious transactions and patterns.
• ODD requirements: Conducting ongoing customer due diligence, which is generally based on the customers' ML/TF risk profiles and ML/TF risk categories, as well as changes in their activities, behaviours, or risk factors.
• Staff Vetting: Performing comprehensive background checks and ongoing vetting of staff to maintain high standards of integrity and awareness.
• Reporting Certain Non-Suspicious Transactions: Obligation to report cross-border or cash transactions over a certain threshold, as per the local AML/CFT regulations, in a timely manner. However, if the transaction is processed through a local bank or another reporting entity, reporting requirements may depend on the local AML/CFT regulatory interpretation.
• Compliance with the regulatory obligations: Including registering with your local AML/CTF supervisor, appointing an AML/CTF officer or an MLRO, answering requests for information from the police, regulators and your AML/CTF supervisor, filing an annual report and more.
• Regular Staff Training: Providing continuous training to ensure employees are aware of AML/CFT protocols and can recognise red flags.
• Timely Reporting of Suspicious Transactions: Ensuring that suspicious transactions and activities are reported to the relevant authority (either your local AML/CFT supervisor or a financial intelligence unit (FIU)) within the required deadlines.

• ML/TF Risk Assessments: Conducting regular assessments of ML/TF risks faced by your business is a part of AML risk management for custodian institutions and custodian account providers.
• Independent AML/CFT Audits and Custodians: Organising periodic independent reviews of the AML/CFT program, other core documents, and components of your AML/CFT framework to assess their existence, compliance, application, and, where applicable, effectiveness, depending on local AML/CFT audit guidance.
• Applying EDD measures: Conducting enhanced due diligence on certain customers and certain transaction types.
• Establishing Clear AML/CFT Policies and Procedures: Creating documented guidelines for staff to follow.

• Monitoring PEPs and Sanctioned Entities: Implementing measures for additional scrutiny of politically exposed persons and entities on sanction lists.
• Screening Against Watchlists: Regular checks of clients against domestic and international watchlists.
• Ensuring Proper Record-Keeping: Maintaining detailed and accurate records of client information and transactions in compliance with AML/CFT regulations.

 

Common Custodians’ AML/CFT Issues

The following list is not exhaustive:

Refined Common Custodians’ AML/CFT Issues:

During Customer Onboarding

• Inadequate Identification of High-Risk Clients: Failure to detect and verify customers requiring enhanced due diligence (EDD), such as offshore corporate clients or trusts with complex ownership structures.
• Insufficient Verification of Beneficial Ownership: Gaps in identifying ultimate beneficial owners, particularly for accounts tied to layered or complex corporate structures.
• Inadequate SoW/SoF Verification Mechanisms: Lack of processes to identify and verify the source of wealth or source of funds for clients from higher ML/TF risk jurisdictions or industries (e.g., gambling or real estate).
• Over-Reliance on Third-Party Documentation: Dependence on unverified or incomplete information provided by intermediaries, increasing onboarding vulnerabilities.

After Customer Onboarding

• Failure to Detect Large or Unusual Transactions: Lack of effective monitoring systems to flag suspicious transactions, such as large, complex, or unusual fund movements across jurisdictions.
• Outdated Customer Information and Risk Profiles: Ineffective systems to regularly update and reassess customer data and risk levels, leading to reliance on obsolete information.
• Non-Detection of Changes in Beneficial Ownership: Weak controls to monitor and respond to changes in account ownership, particularly for trusts and corporate accounts.
• Ineffective Monitoring of Cross-Border Transactions: Failure to scrutinise cross-border transactions, especially those involving high-risk jurisdictions or unverified third parties.
• Weak Integration with Risk-Based Frameworks: Inadequate linkage of ongoing monitoring to initial risk assessments, resulting in blind spots in detecting higher-risk activities.

 

Common Custodians’ Fraud Risks

The following custodians' fraud categories are not exhaustive:

• Custodians and Identity Fraud: Through identity theft or impersonation to access custodians’ systems or services, including unauthorised access to client assets.
• Custodians and Transaction Fraud: Transaction fraud involving stolen, counterfeit, or manipulated documentation to initiate transfers or asset movements.
• Custodians and Insider Fraud: where employees misuse their access to custodial systems for unauthorised asset transfers or tampering with client accounts.
• Custodians and Phishing Fraud: Phishing fraud targets custodians' clients to gain access to sensitive financial information and accounts.
• Custodians and Technology Fraud: Technology fraud exploits weaknesses in custodial platforms, including the manipulation of software, systems, or transaction records for fraudulent activities.
• Custodians and Real Estate Fraud: Involving fraudulent property transactions, manipulation of property valuations, and document forgery to misappropriate real estate assets.
• Custodians and Securities Fraud: Involving insider trading, market manipulation, and fraudulent securities transactions involving custodians’ clients.
• Custodians and Trust Fraud (specific to Trust Custodians): Through misappropriation or manipulation of trust assets, often involving fraudulent documentation or unauthorised use of trust funds.
• Custodians and Digital Asset Fraud: Involving cryptocurrencies, including hacking, unauthorised access to digital wallets, and manipulation of blockchain transactions.
• Custodians and Fund Fraud: Involving embezzlement, mismanagement of funds, or involvement in fraudulent investment schemes through custodianship.

 

 

Common AML/CTF Red Flags for Custodians

The Financial Action Task Force (FATF) and various national AML/CTF supervisors mention the following non-exhaustive list of ML/TF red flags for custodians’ anti-money laundering compliance:

• Frequent Changes in Beneficial Ownership: Unexplained or sudden changes in ownership of custodial accounts, particularly for trusts, corporate accounts, or real estate holdings.
• Unverified Third-Party Transactions: Transactions involving unrelated third parties without proper documentation or justification.
• Suspicious Cross-Border Transfers: Frequent or large international transfers lacking clear economic rationale, particularly through high-risk jurisdictions.
• Inconsistent Customer Information in Cross-Border Accounts: Discrepancies between declared and actual beneficial ownership, origin of funds, or transactional activity.
• Blockchain Transaction Anomalies: Large or frequent transfers through blockchain networks without verifiable wallet ownership, including the use of mixing or tumbling services (digital asset custodians).
• Use of Custodial Accounts for Collateralising High-Risk Transactions: Collateralisation of loans or derivatives through custodial accounts without insufficient data on the legitimacy of the underlying assets or ownership (asset custodians).
• Pooling Risks in Fund Custodianship: Small deposits aggregated into pooled fund accounts, obscuring the origin of larger transactions.
• Circular Trading in Securities Custodianship: Repeated securities trades between accounts, creating artificial market activity to obscure fund flows.
• Unjustified Real Estate Withdrawals: Sudden or unexplained withdrawals from real estate trust accounts tied to jurisdictions with poor AML oversight.
• Unregulated Exchange Settlement: Custodians using unregulated cryptocurrency exchanges for transaction settlement without applying enhanced due diligence.
• Private Equity Due Diligence Gaps: Offshore entities investing in private equity portfolios through custodians.
• Use of Nominee Accounts: Nominee accounts obscuring the identity of actual beneficiaries.