Independent testing is a critical component of an effective anti-money laundering (AML) compliance program. It ensures that internal controls are operating as intended and that your firm’s compliance efforts align with regulatory expectations.
This requirement is mandated under several international rules, including the U.S. Bank Secrecy Act, the new FinCEN AML Rule, UK Regulation 21 of the Money Laundering Regulations 2017, European Banking Authority Guidelines, and EU AMLR, AMLA, and AMLD6. Independent testing also satisfies DFSA and FSRA rules for reviewing the effectiveness of AML/targeted financial sanctions policies, procedures, systems, and controls.
Why Independent Testing Matters
Independent testing is the cornerstone of a robust AML/countering the financing of terrorism (CFT) program. Think of it as a health check for your compliance framework and an objective evaluation that keeps your program strong and aligned with evolving regulatory expectations.
Independent testing:
- Uncovers compliance gaps: It goes beyond surface-level checks to identify vulnerabilities in your AML processes that could expose your firm to regulatory risks or financial crime.
- Evaluates control effectiveness: It evaluates how well your AML controls are working in practice and whether they meet the demands of today’s compliance landscape.
- Supports regulatory readiness: Independent testing helps ensure your compliance efforts are not only aligned with applicable regulations, but are also proactive, reinforcing your commitment to regulatory excellence.
How To Conduct Independent Testing
Testing must be conducted by personnel or an external party who are independent from the implementation and oversight of the AML/CFT program. This ensures objectivity and impartiality. Internal personnel tasked with testing should not be involved in the AML program’s operations or report to those responsible for its implementation. For many firms, this requirement necessitates engaging a third-party provider.
Independent testing is a multi-step process that ensures your AML/CFT program is not only compliant, but also effective in practice.
Key steps include:
- Appoint qualified testers: Testers must possess in-depth knowledge of AML requirements and be independent of the functions being tested.
- Create a detailed plan: Define the review period and focus areas, such as customer due diligence (CDD), transaction monitoring, and reporting.
- Collect and review documentation: Gather relevant books, records, and materials for analysis.
- Conduct a sample review of Know-Your-Customer (KYC)/CDD files: Review a sample of customer or investor files to assess compliance with due diligence requirements.
- Report findings: Document any deficiencies and provide recommendations for corrective action to senior management or the board.
- Follow up on corrections: Conduct subsequent testing to verify that deficiencies have been resolved.
Frequency of Testing
The frequency of independent testing should be based on regulatory requirements and the firm’s specific risk profile, including client types, services offered, and geographic exposure. Advisers should align testing intervals with their overall risk management strategy. Higher-risk firms may require more frequent assessments. The testing process must evaluate the adequacy and effectiveness of the AML/CFT program’s policies, procedures, and controls to ensure compliance with appropriate regulations.
Protecting Your Firm, Strengthening Your Future
Independent testing is not just a regulatory requirement—it is a strategic tool for improving the effectiveness of your AML/CFT program. Regular, thorough reviews allow firms to identify weaknesses, implement improvements, and reduce exposure to financial crime risks.
How We Help
Our AML and Financial Crimes practice supports investment advisers and broker-dealers in meeting regulatory obligations and managing risk. We offer:
- AML risk assessments and policy development: Risk assessments focused on your firm’s compliance with relevant AML and sanctions regulations.
- AML program reviews: Independent evaluations aligned with FinCEN and SEC AML rules and industry best practices.
- Outsourced managed services: A full-service, single-vendor solution supported by experienced compliance professionals, including Certified Anti-Money Laundering Specialists (CAMS) and other industry-leading financial crimes experts.
- ComplianceAlpha® regulatory technology: A centralized platform that automates data screening, enables continuous risk surveillance, maintains detailed records for regulatory reporting, and helps ensure compliance with global AML standards, including OFAC, FinCEN, the USA PATRIOT Act, MLD5, FINRA, SEC, and BSA.
Whether launching, growing, or safeguarding your business, we provide end-to-end compliance support. Contact us today to learn how ACA can strengthen your AML program with independent testing and expert support.