AML/CFT in Capital Markets Flashcards

What does AML stand for in financial regulation?

Answer: Anti-Money Laundering

AML stands for Anti-Money Laundering — the set of laws, regulations, and procedures designed to prevent criminals from disguising illegally obtained funds as legitimate income through financial systems.

What does CFT stand for in the context of AML/CFT?

Answer: Countering the Financing of Terrorism

CFT stands for Countering the Financing of Terrorism — the measures taken to prevent terrorist groups from accessing the financial system to fund their activities.

What is money laundering?

Answer: The process of making illegally obtained money appear to come from a legitimate source

Money laundering is the process of concealing the origins of illegally obtained money (e.g., from drug trafficking, corruption) by passing it through complex sequences of banking transfers or transactions to make it appear as legitimate income.

What are the three stages of money laundering?

Answer: Placement, layering, and integration

The three classic stages of money laundering are: Placement (introducing illegal cash into the financial system), Layering (disguising the trail through complex transactions), and Integration (reintroducing the laundered money as legitimate funds).

What is 'customer due diligence' (CDD) in AML compliance?

Answer: The process of verifying a customer's identity, understanding their business activities, and assessing the risk they pose for money laundering

CDD involves verifying customer identity (who they are), understanding the nature of their business and the source of funds, and assessing the money laundering risk they present. It is a mandatory process for all SCA-licensed firms.

What is 'enhanced due diligence' (EDD) and when is it applied?

Answer: More intensive verification and monitoring applied to higher-risk customers such as PEPs, complex structures, or high-risk jurisdictions

EDD is a more rigorous level of customer due diligence applied when the risk of money laundering is higher — for example, politically exposed persons (PEPs), customers from high-risk jurisdictions, or complex ownership structures.