Specialised Solutions for Derivatives Platforms’ AML/CFT Management

We offer a comprehensive set of anti-money laundering (AML), counter-terrorist financing (CFT), and fraud prevention solutions for derivative platforms’ anti-money laundering compliance that are tailored to applicable AML/CTF (aka CTF) laws, regulations, AML/CTF supervisors' guidance for derivatives issuers platforms, sector-specific red flags and indicators, to help your business meet applicable obligations that cover futures trading money laundering and terrorist financing risk mitigation, derivatives trading fraud prevention, the detection and handling of other types of financial crime.

We have designed our AML solutions to help you navigate the complexities of derivatives platforms’ AML requirements in a commercially oriented and goal-focused manner, providing effective AML/CTF support for all aspects of derivatives platforms’ AML 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 derivatives platforms
• Any derivatives platforms' fraud prevention obligations or expectations your business may be subject to
• Any related compliance obligations, including, but not limited to, derivatives platforms’ 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 derivatives platforms
• 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 derivatives platforms' anti-money laundering, counter-terrorist financing and sanctions compliance, as well as financial crimes prevention

 

What Jurisdictions Do Our Derivatives Platforms’ AML Solutions Cover?

Our jurisdiction-specific derivatives platforms’ AML obligations, requirements, and compliance requirements focus on:

• Derivatives Platforms' AML Solutions in Australia: Derivatives platforms' AML obligations in Australia are set out in the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 and the AML/CTF Rules, supervised by the Australian Transaction Reports and Analysis Centre (AUSTRAC).
• Derivatives Platforms' AML Solutions in New Zealand: Derivatives platforms' AML requirements in New Zealand are governed by the Anti-Money Laundering and Countering Financing of Terrorism Act 2009, supervised by the Financial Markets Authority (FMA).
• Derivatives Platforms' AML Solutions in the United Kingdom: Derivatives platforms' AML obligations in the United Kingdom are set out in the Money Laundering Regulations 2017 (updated in 2020), supervised by the Financial Conduct Authority (FCA).
• Derivatives Platforms' AML Solutions in the USA: Derivatives platforms' AML requirements in the USA are governed by the Bank Secrecy Act (BSA), including regulations like 31 CFR and 31 USC §5318, enforced by the Financial Crimes Enforcement Network (FinCEN).
• Derivatives Platforms' AML Solutions in the European Union: Derivatives platforms' AML obligations in the European Union are set out in the Sixth Anti-Money Laundering Directive (AMLD6), supervised by the European Banking Authority (EBA) and National Competent Authorities (NCAs).
• Derivatives Platforms' AML Solutions in Singapore: Derivatives platforms' AML requirements in Singapore are set out in the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act and the Monetary Authority of Singapore (MAS) Act, supervised by the Monetary Authority of Singapore (MAS).
• Derivatives Platforms' AML Solutions in Vanuatu: Derivatives platforms' AML obligations in Vanuatu are governed by the Prevention of Money Laundering and Terrorist Financing Act, supervised by the Vanuatu Financial Services Commission (VFSC).
• Derivatives Platforms' AML Solutions in the Cayman Islands: Derivatives platforms' AML requirements in the Cayman Islands are governed by the Proceeds of Crime (Amendment) Law (No. 14) 2014, supervised by the Cayman Islands Monetary Authority (CIMA).
• Derivatives Platforms' AML Solutions in Bermuda: Derivatives platforms' AML obligations in Bermuda are set out in the Anti-Money Laundering Regulations 2008, supervised by the Bermuda Monetary Authority (BMA).
• Derivatives Platforms' AML Solutions in the British Virgin Islands (BVI): Derivatives platforms' AML requirements in the British Virgin Islands are set out in the Anti-Money Laundering and Terrorism Financing Act, supervised by the British Virgin Islands Financial Services Commission (BVI FSC).
• Derivatives platforms' AML solutions in the Isle of Man: Derivatives platforms' AML obligations in the Isle of Man are governed by the Money Laundering (Amendment) Act 2019, supervised by the Isle of Man Financial Services Authority (IOMFSA).
• Derivatives Platforms' AML solutions in other offshore jurisdictions.

 

 

Which Types of Derivatives Issuers Do We Support?

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

• Exchange-Traded Derivatives Issuers
• Over-the-counter (OTC) Derivatives Issuers
• Swaps Execution Facilities (SEFs)
• Clearinghouses
• Forex (foreign exchange) platforms
• Other derivatives providers that are subject to the derivatives providers' AML requirements

 

Derivatives Platforms’ AML Advisory and Support

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

• Detailed AML/CTF compliance advice: Tailored to derivatives platforms’ 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.
• Derivatives Platforms' 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 derivatives platforms. Also, tailored to derivatives trading fraud environment, risk management practices, and stakeholders' expectations and obligations (banks, regulators, insurers, shareholders, etc.).
• Banking relationships advice: Advising derivatives issuers and platforms 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 derivatives platforms 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 derivatives platforms’ 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 derivatives platforms’ anti-money laundering compliance obligations and your specific situation.
• AML/CFT remediation advice: We help derivatives platforms 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 derivatives platforms' 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 the derivatives platforms’ 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 derivatives platforms’ 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 derivatives platforms’ AML requirements, AML regulations and guidance.
• Workshops on Emerging Trends and Red Flags: Advising on new AML trends, red flags, and typologies relevant to futures trading 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 derivatives platforms
• KYB analysis and ML/TF risk assessment application to specific clients, transactions and situations
• The futures trading 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 futures trading 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 cross-border futures trading
• Other obligations related to the derivatives platforms’ AML requirements

• Practical Compliance Applications: Ensuring the practical application of training, focusing on real-world futures trading money laundering, terrorist financing, and common derivatives trading fraud scenarios, as well as specific challenges related to the derivatives platforms’ 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 derivatives platforms and other businesses subject to AML/CFT regulations.

 

 

Comprehensive AML/CFT Managed Solution for Derivatives Platforms

Our derivatives platforms’ 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 derivatives platforms’ anti-money laundering obligations for your business.
• Derivatives Platforms' 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 robust 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 derivatives platforms’ 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 derivatives platforms’ AML requirements in a commercially efficient manner without making AML/CFT compliance a business hindering factor.
• Transaction Monitoring and Derivatives Trading 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 derivatives platforms’ 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 futures trading money laundering risks
• identifying areas for improvement

Our AML/CFT compliance reports cover:

• your ongoing compliance status in relation to derivatives platforms’ 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 AML/CFT compliance requirements for derivatives issuers and platforms.

• Derivatives Platforms’ AML and Externally Reportable Matters: Implementing effective external reporting procedures to help you comply with derivatives platforms’ 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 derivatives platforms’ AML requirements for statutory reporting.
• Derivatives Trading 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 Derivatives Platforms’ Anti-Money Laundering Compliance

We offer a range of KYB solutions to help you effectively comply with derivatives platforms’ AML requirements. These include:

• Establishing ML/F 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 Derivatives Platforms’ AML/CFT Compliance

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

• Derivatives Platforms’ AML/CFT Framework Development: Covering specific derivatives platforms’ 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 derivatives platforms’ 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 derivatives platforms 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 derivatives platforms’ 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 derivatives platforms’ 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.

• Derivatives Platforms’ AML/CTF Procedures for Effective AML Compliance: Effective procedures are another core pillar of derivatives platforms’ 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 derivatives platforms’ 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 derivatives platforms' anti-money laundering compliance. We help you develop, map, and assess your internal ML/TF controls and improve their effectiveness to ensure compliance with derivatives platforms’ 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 AML/CFT solution for derivatives issuers and platforms 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, derivatives platforms’ 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, derivatives trading 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 derivatives platforms’ AML solutions include needs assessment and assistance in selecting and integrating appropriate AML technologies for efficient derivatives platforms’ 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
• Derivatives Platforms’ AML/CFT Obligations for External Reporting
• Derivatives Trading Fraud Prevention
• 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
• Derivatives Platforms’ AML/CFT Obligations for Record-Keeping
• Transaction Monitoring and Surveillance: Including transaction monitoring tools to automate detection and response to futures trading money laundering and terrorist financing red flags
• Effective CRM for handling Derivatives Platforms’ AML requirements

 

Derivatives Platforms’ 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 derivatives platforms’ 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 derivatives platforms’ 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 derivatives platforms’ 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 derivatives platforms 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 derivatives platforms’ 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
• derivatives platforms’ 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 process can be tailored to address particular AML issues or compliance areas, ensuring a targeted approach to derivatives platforms’ 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 derivatives platforms’ 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.

 

Derivatives Trading Fraud Prevention Solutions

The derivatives platforms' anti-money laundering control environment is closely related to prevention of financial crime in general, and fraud prevention in particular. Derivatives platforms' 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 Derivatives Trading 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 derivatives and futures 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.

Derivatives Platforms' 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 stakeholders

 

 

Broader Risk & Compliance Solutions for Derivatives Platforms

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 derivatives platforms’ 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 derivatives platforms, 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 Derivatives Platforms 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 derivatives platforms, issuers and broker-dealers, including preparation, licensing process management, regulator liaison, and post-licensing support in:

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

 

 

Common Money Laundering Risks for Derivatives Platforms

Futures trading 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 derivatives platforms represent only a sample and are not exhaustive.

 

Product-Related Risks and Derivatives Platforms’ AML Compliance

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

• Failure to Monitor for Funds Obscured by Derivatives Trading: Lack of mechanisms to detect misuse of derivatives contracts, such as swaps or options, to layer or transfer illicit funds through complex transactions.
• Inadequate Controls for Derivative Rollovers (Exchange-Traded and OTC Derivatives Issuers): Absence of effective controls to identify frequent rollovers of derivative positions with no clear economic purpose, which may facilitate money laundering.
• Insufficient Risk Assessment of High-Value, Low-Margin Contracts (Swaps Execution Facilities): Failure to assess risks associated with derivatives involving high values and disproportionately low margins, which may allow fund transfers without significant exposure.
• Lack of Monitoring for Leveraged Forex Trades (Forex Platforms): Inadequate monitoring of clients engaging in highly leveraged forex trades that significantly exceed their financial capacity may indicate attempts to obscure the layering of illicit funds through rapid gains and losses.
• Failure to Monitor Misuse of Complex Derivatives Structures (OTC Derivatives and Clearinghouses): Lack of controls to detect the misuse of intricate derivatives products, such as bespoke OTC contracts, increases the risk of money laundering through hidden fund flows.
• Lack of Verification for Source of Funds in Large Transactions (All Platforms): Absence of robust processes to verify the origin of funds used in high-value derivatives contracts, exposing platforms to risks of money laundering.
• Inadequate Detection of Risks in Digital Asset Derivatives (Digital Derivatives Platforms): Insufficient controls to assess the ML/TF risks of derivatives tied to cryptocurrencies, particularly due to the pseudonymity of digital assets.
• Weak Oversight of Illiquid Commodities Derivatives (Commodities-Based Derivatives Issuers): Failure to identify the risks of trading illiquid or low-volume commodities derivatives, which may enable the movement of illicit funds through manipulation or mispricing.
• Inadequate Detection of Market Manipulation Risks (All Platforms): Failure to monitor for market manipulation activities, such as wash trading or spoofing, may allow derivatives platforms to facilitate layering of illicit funds.
• Lack of Oversight for Opaque Pricing Mechanisms (OTC and Commodities-Based Derivatives Issuers): Failure to monitor pricing irregularities or discrepancies in derivatives markets can enable fraudulent valuations and obscure the movement of illicit funds.

 

 

Jurisdictional Risks and Derivatives Platforms’ AML Compliance

Some of the jurisdictional risks relevant to futures trading money laundering prevention include:

• Failure to Monitor for Ownership Transfers to High-Risk Jurisdictions: Lack of mechanisms to track the transfer of derivatives ownership to entities in high-risk jurisdictions may allow undetected fund flows tied to illicit activities.
• Exposure to Tax Haven Transactions: Failure to monitor derivative transactions involving tax havens with lax AML/CFT controls may enable the misuse of derivatives for money laundering.
• Use of Derivatives for Sanction Evasion: Lack of measures to identify transactions structured to bypass international sanctions increases the risk of illicit activity through derivatives platforms.
• Inadequate Due Diligence on International Clients: Absence of robust processes to verify the source of funds for international clients, especially those from jurisdictions with limited AML/CFT transparency, may lead to the handling of illicit funds.

 

Delivery Method Risks and Derivatives Platforms’ AML Compliance

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

• Insufficient Controls on Electronic Trading Platforms: Lack of mechanisms, such as identity verification and transaction monitoring, to detect and prevent the misuse of electronic trading platforms for illicit financial activities increases ML/TF risks.
• Failure to Address Anonymity in Digital Derivatives Transactions: Insufficient controls to mitigate ML/TF risks arising from client anonymity, such as pseudonymous accounts or unverified users, in online trading environments.
• Inadequate Monitoring of High-Speed Trading Activities: Failure to identify unusual patterns in rapid trade executions, such as erratic trading volumes or repetitive high-speed transactions, can facilitate layering of illicit funds or market manipulation.
• Inadequate Controls for Cross-Border Derivatives Transactions: Absence of mechanisms, such as fund tracing and jurisdictional monitoring, for derivatives trades across multiple jurisdictions may obscure the origin of funds and facilitate money laundering.
• Failure to Detect Abuse of Automated Trading Systems: Lack of controls to identify manipulative or high-volume trades executed via algorithms, such as wash trading or spoofing, increases exposure to illicit financial activities.
• Inadequate Controls on Complex Derivatives Instruments: Failure to monitor the use of complex or opaque financial instruments, such as bespoke derivatives contracts, to obscure fund flows increases ML/TF risks.
• Insufficient Oversight of Third-Party Payment Processors: Failure to monitor and understand the ML/TF controls of payment processors, increases the risk of illicit fund movements in and out of derivatives platforms.

Customer Type Risks and Derivatives Platforms’ AML Compliance

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

• Failure to Identify Beneficial Owners of Offshore Entities: Lack of mechanisms to verify beneficial ownership for clients trading through offshore companies may allow concealment of illicit funds.
• Inadequate Monitoring of High-Volume Traders, Including High-Net-Worth Individuals: Failure to monitor trading activities of high-net-worth individuals whose behaviour may not align with their reported financial status increases exposure to ML/TF risks.
• Insufficient Enhanced Due Diligence for Politically Exposed Persons (PEPs): Lack of enhanced due diligence measures for PEPs engaging in derivatives trading increases ML/TF exposure.
• Lack of Oversight for Clients Using Multiple Accounts: Absence of controls to detect clients opening multiple accounts across jurisdictions may allow structuring of transactions to evade detection thresholds.
• Failure to Conduct Due Diligence on Institutional Clients: Insufficient due diligence measures for institutional clients, such as hedge funds or asset managers, may enable the use of derivatives for illicit financial activities.
• Insufficient Verification for Clients from High-Risk Industries: Failure to apply adequate due diligence measures for clients in high-risk industries, such as cryptocurrency businesses or cash-intensive sectors, increases ML/TF vulnerabilities.
• Inadequate Monitoring of Sudden Trading Behaviour Changes: Lack of systems to detect significant deviations in trading activity from a client’s expected profile may allow undetected ML/TF activities.

Institutional Risks and Derivatives Platforms’ AML Compliance

Some of the institutional ML/TF risks relevant to derivatives platforms' anti-money laundering compliance include:

• Failure to Conduct Due Diligence on Clearinghouses: Lack of proper due diligence on clearinghouses used for derivative settlements may expose platforms to ML/TF risks, particularly if the clearinghouse operates in a jurisdiction with weak AML/CFT standards.
• Exposure to Unregulated or High-Risk Exchanges: Engagement with trading platforms or exchanges operating in jurisdictions with weak AML/CFT standards or lacking robust compliance measures increases exposure to ML/TF risks.
• Insufficient Monitoring of Third-Party Service Providers: Lack of oversight of third-party service providers, such as payment processors or introducing brokers, may create vulnerabilities in AML/CFT compliance.
• Weak Controls Over Institutional Clients’ Transactions: Failure to monitor transactions initiated by institutional clients, such as hedge funds or asset managers, may allow the misuse of derivatives platforms for illicit financial activities.

 

 

 

Standard Anti-Money Laundering Requirements for Derivatives Platforms

Given the variety of derivatives providers’ AML requirements, this list is not exhaustive:

• Customer due diligence and KYC obligations for derivatives issuers: 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 on the platform 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 and senior managers 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 futures trading platforms and derivatives issuers.
• Independent AML/CFT Audits and Derivatives Platforms: 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 clients 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 Derivatives Platforms’ AML/CFT Issues

This is not an exhaustive list and could include:

 

Before Customer Onboarding

• Failure to Assess ML/TF Risks in Complex Product Structures: Insufficient processes to conduct AML/CFT risk assessments for complex derivative products before onboarding clients may expose the platform to vulnerabilities.

 

During Customer Onboarding

• Inadequate Identification of Ultimate Beneficial Owners: Lack of effective mechanisms to identify beneficial owners within layered financial structures may enable the concealment of illicit funds.
• Insufficient Customer Verification Processes: Failure to implement robust KYC measures for clients trading derivatives increases the risk of onboarding individuals with fraudulent or illicit identities.
• Inadequate Use of Compliance Technology for Screening: Lack of automated systems to screen for sanctions, politically exposed persons (PEPs), or high-risk customers during onboarding increases ML/TF risks.

 

After Customer Onboarding

• Inadequate Monitoring of Complex Derivative Transactions: Lack of mechanisms to continuously monitor derivative transactions for suspicious patterns or activities increases ML/TF exposure.
• Failure to Meet Transaction Reporting Requirements: Insufficient controls to ensure timely and accurate reporting of suspicious derivative transactions as per AML/CFT obligations.
• Insufficient Record-Keeping Practices: Failure to maintain detailed transaction records in line with AML/CFT standards may hinder regulatory compliance and investigations.

 

 

Common Derivatives Trading Fraud Risks

The following list of derivatives trading fraud types is not exhaustive:

• Derivatives Price Manipulation and Collusion: Activities such as wash trading, spoofing, or coordinating with others to control market pricing or trading volume.
• Insider Trading in Derivatives Markets: Use of confidential or non-public information to execute trades, giving unfair advantages and undermining market integrity.
• Front Running of Client Trades: Execution of trades based on advance knowledge of pending client transactions, potentially influencing market outcomes and undermining trust.
• Cyber Fraud and Security Breaches: Fraudulent activities such as hacking, digital data theft, or system manipulation to gain unauthorised access to accounts or influence market activity.
• Margin Manipulation: Providing false or misleading information about collateral or inflating asset values to secure higher leverage in trading accounts.
• Ponzi Scheme Facilitation: Use of derivatives platforms to create fraudulent investment schemes where funds from new investors are used to pay returns to earlier investors.
• Fraudulent Broker Practices: Instances of brokers executing unauthorised trades, misrepresenting contract details, or charging hidden fees, leading to customer losses.
• Price Fixing and Benchmark Manipulation: Collaboration between market participants to artificially set price levels or rig benchmark rates in derivatives markets.

 

 

Common AML/CTF Red Flags for Derivatives Platforms

The Financial Action Task Force (FATF) and various national AML/CTF supervisors outline the following ML/TF red flags for derivatives issuers and platforms. This is not an exhaustive list:

• Unusual Trading Patterns: Transactions inconsistent with market trends or the client’s known trading history.
• Rapid Position Changes: Frequent, unexplained shifts in positions, particularly in complex or high-value derivatives.
• Anomalous Trade Reversals: Quick trade reversals, suggesting test trades for potential ML/TF activities.
• Market Manipulation Indicators: Trades showing patterns of wash trading, spoofing, or other market manipulation tactics.
• Inconsistent Fund Movements: Funds moving to or from accounts without a clear link to trading activities.
• Third-Party Fund Movements: Unrelated third parties depositing or withdrawing funds from trading accounts.
• Unusual Counterparty Payments: Payments to or from counterparties with no legitimate trading relationship.
• Complex Cross-Jurisdictional Structures: Use of overly complex trade structures spanning multiple jurisdictions, obscuring ownership or fund flows.
• Use of Intermediaries in High-Risk Jurisdictions: Brokers or intermediaries from jurisdictions with weak AML controls facilitating trades.
• Frequent Changes in Trading Strategies: Regular, unexplained adjustments to strategies or risk profiles.
• Lack of Economic Rationale: Trades or positions lacking a clear business purpose or economic rationale.
• Abnormal Correlation with Market Events: Trading patterns closely linked to political or market events, suggesting insider information.
• Disproportionate Leverage Use: Excessive leverage inconsistent with the client’s financial profile or risk tolerance.
• Complex Transactions Involving Offshore Entities: Use of offshore entities, particularly in tax havens, for intricate trades.