Recurring Findings in AML/CFT Audits: Weaknesses That Increase Regulatory Risk

FINANCE AND BANKING / by Miguel Gallardo Guerra

In practice, one of the most significant compliance mistakes is assuming that findings identified in Anti-Money Laundering and Counter-Terrorism Financing (AML/CFT) audits are incidental or minor. Experience shows, however, that certain deficiencies recur frequently and, when not addressed in a timely manner, can escalate into material regulatory risks.

Identifying these patterns is essential to strengthen the prevention framework before supervisory intervention occurs.

Most Frequent Structural Weaknesses

Among the findings most commonly observed in technical AML/CFT audits are the following:

Outdated risk assessment methodologies, or methodologies lacking formal evidence of approval or of review of their implementation results by the competent governing body.

Misalignment between the documented Risk-Based Approach and the entity’s actual day-to-day operations.

Customer identification and know-your-customer files containing material omissions, documentary inconsistencies, or lack of updates in light of the assigned Risk Rating.

Lack of traceability between the alerts generated, the analysis performed, and the determination ultimately adopted.

Generic work programs that do not align with the Obligated Entity’s Risk Rating, its customer base, and the products and services it offers.

Absence of documented follow-up on findings and recommendations issued in prior audits.

These deficiencies do not necessarily constitute, on their own, serious breaches. However, their accumulation evidences weaknesses in the design or the effective implementation of the internal control system for AML/CFT purposes.

The Risk of Normalizing Deficiencies

One factor that increases regulatory exposure is the normalization of deficient practices under the rationale that “this is how it has always been done” or that “there have been no prior observations.”

AML/CFT supervision has evolved toward a deeper assessment of the real effectiveness of compliance by Obligated Entities, prioritizing consistency among manuals, methodology, operations, and documentary evidence. In this context, repeated or unremediated deficiencies may trigger additional information requests, formal observations, and even heightened scrutiny by the supervisory authority.

Likewise, failure to implement corrective actions in a timely manner may be interpreted as a weakness in corporate governance and in the entity’s compliance culture.

The Importance of Early Detection

A robust audit does not merely identify regulatory non-compliance; it also helps detect structural weaknesses before they translate into regulatory contingencies. The true value of an audit lies in its ability to assess the effectiveness of compliance, identify recurring vulnerabilities, and propose substantive improvements aligned with the entity’s Risk Rating.

Promptly addressing findings and recommendations, and properly documenting the corrective actions implemented, strengthens the AML/CFT framework and significantly reduces the likelihood of observations by the authority.

Conclusion

AML/CFT audits should not be limited to confirming the formal existence of policies and procedures. They are a strategic tool to identify structural weaknesses, strengthen controls, and anticipate regulatory risks.

A technical, independent, and well-supported review enables an entity not only to meet a regulatory obligation, but also to consolidate an effective line of defense in supervisory scenarios and against more serious contingencies.