An AML Guide in 2025: Assessing Risks, KYC, CDD, Duties & Responsibilities

1. What is Money Laundering and Terrorist Financing 

Money laundering and terrorist financing are major threats to global security and financial integrity. Money laundering hides the origins of illegally obtained funds, allowing criminals to use them freely. Terrorist financing, meanwhile, involves funding terrorist activities often with money that appears legitimate. 

Both crimes exploit financial systems, cross borders easily, and adapt to new technologies. Understanding how they work is key to stopping the flow of dirty money and dangerous motives. 

The Three Stages of Money Laundering:

1. Placement – The illicit funds are introduced into the financial system. This might involve depositing cash into banks, purchasing high-value items, or using shell companies to mask the source. 
2. Layering – The money is moved through a complex series of transactions to obscure its origin. This can include wire transfers, offshore accounts, cryptocurrency exchanges, or converting funds into assets like art or real estate. 
3. Integration – The laundered money is reintroduced into the economy as seemingly legitimate income. It may be invested in businesses, used to buy property, or spent on luxury goods. 

Money Laundering is about cleaning “dirty” money from past crimes, while Terrorist financing is about raising or moving money to commit future crimes, regardless of how the money was obtained. 

In Cyprus, the key government bodies responsible for overseeing Anti-Money Laundering (AML) and Counter-Terrorist Financing (CFT) are the Central Bank of Cyprus (CBC), Cyprus Securities and Exchange Commission (CySEC), the Cyprus Bar Association, the Institute of Certified Public Accountants of Cyprus (ICPAC), and the Unit for Combating Money Laundering (MOKAS). 

2. Key Roles Responsible for AML/KYC in CIFs 

CySEC-regulated entities, including CIFs, must implement robust Anti-Money Laundering (AML) and Know Your Customer (KYC) procedures. Here’s who holds responsibility: 

1. Board of Directors 
   • Ultimate accountability for AML/KYC compliance.
   • Must ensure the firm has adequate resources, policies, and systems in place. 
   • Approves the AML Manual and reviews the Annual AMLCO Report.
2.  AML Compliance Officer (AMLCO), AML Director, and Alternate AMLCO 
   • Appointed by the Board and approved by CySEC. 
   • Designs and oversees the implementation of AML policies and procedures. 
   • Submits AMLCO reports to CySEC. 
   • Ensures staff training and monitors suspicious activity reporting.
3.  Compliance and Risk Teams 
   • Conduct Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD).
   • Monitor transactions and flag suspicious behavior. 
   • Maintain records and ensure timely reporting. 

3. CDD, KYC, and the Risk-Based Approach 

Customer Due Diligence and Know Your Customer is the process of identifying and verifying a customer’s identity and assessing the potential risks they pose.  

Key Components of CDD and KYC 

• Identification and Verification, it is the collection of official documents (e.g., passports, utility bills) to confirm the customer’s identity. 
• Understanding the Business Relationship, it is determining the purpose and intended nature of the relationship, why the customer is opening an account or conducting certain transactions. 
• Beneficial Ownership Identification, it is knowing who ultimately owns or controls the customer, especially in corporate structures. 
• Screening, checking whether customers are listed at global sanctions lists, identified to be politically exposed persons (PEPs), and any adverse media. 
• Periodic Reviews, reviewing transactions to ensure they align with the customer’s profile and expected behavior and to any changes. 

CDD and KYC helps institutions detect red flags early, such as unusual transaction patterns or inconsistencies in customer information. 

The Risk-Based Approach means adjusting your level of customer checks based on how risky they are, these are the components how risk-based approach works: 

• Risk Assessment, it is the process of evaluating customer based on the risks that they pose based on the following factors 
  • Customer Risk, whether they are PEP, complexity of the entity structure, or entity type. 
  • Geographical Risk, whether they are located or doing business to high-risk countries 
  • Products, services and transactions, whether their products or services are among the prohibited or high-risk business activities. 
  • Delivery Channels, whether establishing business relationship is non-face-to-face or through third parties. 
•  Risk Categorization, based on the risk they pose as per above categories, customers can be classifying as low, medium, or high risk. 

• Due Diligence, foundation for reviewing and collecting customer information 
  • Simplified Due Diligence (SDD) for low-risk customers. 
  • Standard Due Diligence (SDD) for medium-risk customers. 
  • Enhanced Due Diligence (EDD) for high-risk customers. 

4. How can SALVUS assist you?

The SALVUS Regulatory Compliance team is here to design risk-based frameworks and conducting gap analyses to implementing robust Customer Due Diligence (CDD) procedures and preparing for CySEC audits, we offer tailored solutions that align with your business model and regulatory obligations. Whether you’re a newly licensed firm or an established institution looking to enhance your compliance posture, we provide the tools, training, and strategic guidance to help you stay ahead of evolving AML/CFT standards

In response to this demand, SALVUS Funds, in collaboration with the Institute for Professional Excellence (IforPE), presents a self-study course titled “ Learn Marketing Communication & MiFID II Investor Protection in 2025.” This program outlines the necessary knowledge about the information provided to investors, marketing restrictions, as well as the Product Governance regulatory requirements in accordance with the European Directive on Markets in Financial Instruments (MiFID II).

In partnership with the Institute for Professional Excellence (IforPE), SALVUS proudly presents a self-paced CPD course titled An AML Guide in 2025: Assessing Risks, KYC, CDD, Duties & Responsibilities, designed to provide knowledge on the AML duties, responsibilities, risks, and concepts such as KYC and CDD. Suited and recommended for the required annual Continuous Professional Development (CPD).  

Please contact us at  compliance@salvusfunds.com if you require support with your AML/CFT regulatory compliance obligations or are interested in our IforPE courses.

#StayAhead

Should you be interested to read more about Organizational & Operational Requirements, AML compliance or the Compliance Function requirements please visit the selected articles below:   

• A practical guide on AML Risk Assessment and Monitoring Program in 2025 – SALVUS Funds
• Regulatory Updates on AML and MiCA in 2025   – SALVUS Funds
• How to prepare the AMLCO Annual Report in 2025 – SALVUS Funds
• Developing a Compliant AML Manual in 2025: Best Practices for Regulated Firms   – SALVUS Funds
• A Complete Client Onboarding Procedure as per AML & MiFID in 2025  – SALVUS FUNDS
• Know all 2025 Anti-Money Laundering Regulatory Updates – SALVUS FUNDS

The information provided in this article is for general information purposes only. You should always seek professional advice suitable to your needs.