What are rules and regulations? What AML procedures are rules, and which ones are regulations?

AML rules and regulations are made and implemented or executed for major reasons, including mitigating money laundering, combating the financing of terrorism (CFT), and preventing identity fraud and other kinds of financial crime. Although the terms "rules" and "regulations" are often used interchangeably, there are differences in their scope, application, and enforcement.

This article highlights and discusses the difference between anti-money laundering rules and regulations and what role they play in compliance efforts.

What Are AML Rules?

These are particular, prescriptive guidelines that financial institutions such as fintechs must follow to ensure they comply with broader AML laws. They are typically created by governing bodies and outline the particular steps and procedures a financial institution is mandated to implement. 

AML rules are usually detailed and technical, and the focus is on abiding by the regulatory (standard) requirements.

Examples of AML Rules include;

1. Know Your Customer (KYC) Procedures or Measures

The Know Your Customer (KYC) Procedure ensures that financial institutions must gather, verify, and record customer identity details. This is to ensure that despicable characters aren’t allowed access to financial services or there aren't individuals parading to be someone else.
 

2. Suspicious Activity Reporting (SAR)

This rule mandates that financial or commercial entities must report any unusual or suspicious transactions to the relevant authorities present or functional in the host jurisdiction. 

3. Transaction Monitoring and Screening Requirements
 

These rules state how institutions should monitor transactions for unusual activity, like the FATF Travel Rule,

AML rules depend on the jurisdiction. But , they usually involve collecting data, reporting suspicious activities, and monitoring transactions.

What Are AML Regulations?

AML regulations are overlapping legal frameworks established by governmental or international oversight bodies that mandate AML practices. These regulations create the legal foundation for financial institutions and businesses to follow AML guidelines, incorporating both preventive measures and penalties for non-compliance.

AML regulations are broader than rules. Anti-money laundering regulations establish the legal obligations that institutions must comply with and give authorities the power to execute or enforce these requirements. Examples include the Bank Secrecy Act, the European Union's 6th AML directive (AMLD), and the Finacial Action Task Force recommendations.
 

What is the Difference Between  AML Rules and Regulations?
 

1. AML rules and regulations have different scopes; AML regulations are broad legal obligations for AML compliance, while rules are specific detailed procedures made to direct institutions on how to meet their required obligations (regulations)
 

2. AML regulations and rules are enforced in different ways. National or international oversight bodies enforce AML regulations, and penalties are attached in the case of noncompliance or negligence. AML rules are practical guidelines enforced by regulatory agencies for day-to-day compliance. 

3. Anti-money laundering regulations are issued by government or international oversight bodies, like FATF, US Treasury, EU, etc., while rules are given by regulatory agencies like central banks and financial oversight bodies. 
 

4. AML regulations focus on legal frameworks to combat financial crimes; for AML rules, the focus is on operational steps and processes picked or selected to abide by regulations.

5. Examples of AML regulations include the Bank Secrecy Act (BSA, EU’s 6AMLD, and FATF recommendations, while examples of AML rules include Know Your Customer (KYC), suspicious activity reporting, and Transaction monitoring. 

Differences Between AML Rules and Regulations

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