No matter how the economy performs, the Malaysian financial system is set to be tested this year and next. But in this case, it’s not exactly its sturdiness, resilience and support for economic growth that will be put to the test.
Instead, the Financial Action Task Force (FATF) will be reviewing the country’s measures to curb money laundering, terrorist financing and the financing of proliferation of weapons of mass destruction. It will involve the scrutiny of Malaysia’s ability to prevent criminal abuse of its financial sector.
The FATF is an independent inter-governmental body that develops and promotes policies to protect the global financial system against money laundering, terrorist financing and proliferation financing. At the core of its work are the FATF Recommendations, which are a set of international standards on combating money laundering, and the financing of terrorism and proliferation.
The most important part of a mutual evaluation is a country’s effectiveness ratings
Mutual evaluations are also key to what the task force does. According to the FATF, these are when members from different countries assess another country to provide an in-depth description and analysis of its system for anti-money laundering and countering the financing of terrorism (AML/CFT). A mutual evaluation report includes recommendations to further strengthen the system.
The FATF says the most important part of a mutual evaluation is a country’s effectiveness ratings, which are primarily determined through a visit to the assessed country by a team of experts. The assessors seek evidence that the assessed country’s AML/CFT measures are ‘working and delivering the right results’.
Technical compliance
The other main component of a mutual assessment is technical compliance. This is evaluated based on the assessed country providing information on its laws, regulations and any other legal instruments that are meant to combat money laundering, and the financing of terrorism.
A FATF mutual evaluation is a crucial time for a country to demonstrate that its AML/CFT framework can uphold the integrity of its financial system.
There is little doubt that the Malaysian authorities want the country to pass the upcoming mutual evaluation with flying colours. This is reflected in the tabling of the Companies (Amendment) Bill in Parliament late last year. The Companies Commission of Malaysia points out that some of the major changes to the Companies Act are critical in preparing Malaysia for the mutual evaluation.
In May 2000, Malaysia joined the Asia/Pacific Group on Money Laundering (APG), an associate member in the FATF and sometimes referred to as a FATF-style regional body. Malaysia has twice been co-chair of the APG and was granted full FATF membership in 2016. Given that Malaysia has been part of the FATF network for more than two decades, it’s reasonable to expect the country’s AML/CFT to be always improving, if not exemplary.
‘Malaysia has a robust legal AML/CFT framework with generally well-developed and implemented policies’
Last June, Bank Negara Malaysia (BNM) sent a letter to a group of stakeholders to urge them to get ready for the mutual evaluation, which the central bank says will take place between April 2024 and December 2025.
‘An unfavourable rating will have serious impacts to the country, including an increase in compliance costs by reporting institutions [RIs],’ BNM warns.
Malaysia’s Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act has a long list of financial and non-financial businesses and professionals (including accountants) that are designated as RIs. The Act requires RIs to take steps to prevent their organisations from being used as conduits for money laundering or terrorism financing activities.
Malaysia’s previous mutual evaluation concluded in 2015. ‘Overall, Malaysia has a robust legal AML/CFT framework with generally well-developed and implemented policies,’ the FATF reported back then. However, the task force said the level of compliance must be raised to a satisfactory level to meet the criteria for FATF membership.
Ongoing process
The FATF reminds members that the report is not the end of the mutual evaluation process. ‘It is a starting point for the country to further strengthen its measures to tackle money laundering, and the financing of terrorism and proliferation,’ it adds.
These words are worth keeping in mind. Yes, preparing for the mutual evaluation is essential, but after the exercise is over, what matters most is to learn from the findings and to commit to making the necessary improvements.
