The Gap analysis in the context of the AML/CTF Compliance

A term which is often used in the corporate sector, involves the evaluation of the organization's current anti-money laundering (AML) counter terrorist financing (CTF) and Sanctions applicable compliance framework against regulatory requirements and industry best practices. The purpose is to identify any gaps or deficiencies in the organization's AML program and develop strategies to address them effectively.

1. Usually, a Gap Analysis is triggered as a result of a supervisory intervention following a regulatory amendment or supervisory practices to the sectors’ obliged entities, but is also very common in Financial Institutions where an independent testing and audit occurred to assess the overall compliance adherence or specific applied controls (e.g. risk assessment or client due diligence).
   

2. When an independent audit from the 3rd LoD is highlighting certain areas of compliance weakness, the Compliance Function is given a certain period in order to take measures and fix the identified vulnerabilities. The Gap Analysis needs to clearly set in a written form, the steps that will be followed in order to remedy the findings and after the completion of the Gap Analysis, the whole procedure needs to be presented on behalf of the Audit Committee or the Senior Management.     

Here's how the Gap Analysis applies to AML/CTF compliance:

1. Identifying the Current Compliance Framework: This involves gathering data on the existing applicable framework, including the controls, policies and procedures, IT systems, performance metrics and any other relevant factors.

2. Defining the expected outcome: Clearly articulating the desired outcome or goal that you want to achieve, in accordance with the afore said findings. For example, if you have an average of 75% False Positives Alerts and your goal is to decrease them in 60%, within the next 6 months.

3. Developing an Action Plan: Once the gaps are identified, developing specific action plans or strategies to bridge them. This may involve allocating resources, implementing new processes or technologies (e.g. new thresholds/parameters in the automated transaction monitoring system), training employees, or making organizational changes.

4. Monitoring and Reviewing Progress: Continuously monitoring progress towards closing the gaps and reviewing the effectiveness of the action plans.