Foreign currency exchange service providers should apply AML program for exchange houses. Foreign currency exchange (FX) is a common way for money launderers who aim to attack a variety of service weaknesses. The growing volume of FX businesses in the banking and commercial sectors, on Main Streets and online, has also increased the opportunity for criminals to transform illegal funds, while regulators around the world have failed to keep up with emerging threats from the industry, implying that foreign exchange businesses face increased AML risk.

A wide range of enterprises, including hedge funds, financial firms, traders, brokers, and money transfer companies, provide FX services. As an FX service provider or a financial services business connected to one, it is critical to understand the industry’s money laundering risks and how to comply with relevant AML for exchange houses to detect and prevent illicit conduct.

AML for Exchange Houses and Their Risk

The following are the primary money laundering concerns that foreign currency exchange service providers face:

• Identity verification: Because many foreign currency exchange businesses do not need the same level of identification as other types of financial service organizations, criminals can use them to launder money anonymously. Because of the cash-intensive nature of foreign exchange services and the ability to receive cash transfers through connected remittance services, criminals may swiftly convert money or simply hire money mules to carry out transactions on their behalf. Similarly, the growth of online foreign exchange businesses makes consumer identification verification more complicated and impossible for authorities to monitor. As a result, foreign exchange firms face increased AML risks.
• Regulatory disparity: Because foreign currency transactions frequently involve many countries, money launderers may aim to exploit discrepancies or weaknesses in regulatory requirements across borders. The FATF has cautioned that many countries, particularly those deemed higher risk, have less effective AML/CFT rules and regulatory institutions to cope with the threat posed by money launderers in the forex market. Because of this regulation mismatch, corporations may employ separate reporting levels for suspicious transactions, or foreign financial authorities may struggle to communicate with one another during investigations.

Observing AML Regulations Concerning AML Risk in Exchange Houses

Foreign exchange service providers should be conversant with their jurisdiction’s AML for Exchange houses and CFT legislation, including any licensing requirements. Firms in Financial Action Task Force (FATF) member countries must take a risk-based approach to the money laundering concerns they face and implement appropriate safeguards as part of an internal CFT and AML for Exchange houses program.

In reality, this implies that foreign exchange businesses should:

• Conduct customer due diligence (CDD) checks at onboarding and throughout the customer engagement to correctly verify client identities. When negotiating with another FX firm, CDD checks should also be utilized to demonstrate beneficial ownership.
• Implement transaction monitoring methods to detect suspicious FX transactions that might indicate criminal behavior. This includes transactions that exceed specified reporting criteria, unexpected transaction patterns, or transactions involving high-risk nations.
• Ensure that customers are screened and monitored for politically exposed person (PEP) status, sanctions status, and involvement in negative media articles.
• Appoint an AML compliance officer to supervise audits, administer the compliance program, and communicate with financial authorities.