It’s estimated that between two and five percent of global GDP, or US$800 billion to US$2 trillion in current US dollars1 is laundered in one year. More than 10 years after 9/11, regulators have become stricter on the banking industry specifically, as the expectations apply to combating money laundering and terrorist financing.
“Worldwide AML has developed significantly over the past 20 years and recent regulatory scrutiny has seen unprecedented fines being handed down,” comments Kevin West, Head of Anti-Money Laundering at KPMG.
“Ensuring banking systems cannot be used for money laundering and terrorist financing is a key imperative for policymakers and lawmakers across the globe. This can only be achieved with the active assistance of the banking industry and the board of directors who have an important role to play in ensuring accountability throughout the bank. Interestingly though, more emphasis has also been placed on the role of senior management who are setting an example, by integrating AML compliance within the bank’s business strategy.”
KPMG’s survey also found that the cost of compliance has increased over the past number of years. Due to challenges of managing the regulatory requirements of a number of jurisdictions, 95 percent of respondents indicated they had benchmarked their AML policies and procedures based on local regulations and global best practices. Banks within the African region indicated that their biggest spend over the past two years was in Know Your Customer (KYC) policy and process, enhanced transaction monitoring/reporting (sixty-three percent) and training (forty-nine percent) where Southern, East and West Africa all mirrored this finding.
Encouragingly, the survey shows that the vast majority of respondents believe that the current AML burden is acceptable and they want to work with regulators and law enforcement to make the system work more effectively. Going forward, AML compliance will continue to enjoy prominence within the banking environment, where ninety percent of respondents indicated that their investment in AML will increase over the next three years. Respondents further confirmed that operational areas such as sanction list screening, reviews and upgrading of the existing transaction monitoring systems and updating of the KYC for existing customers is where the most crucial spend will occur in the next three years.
“This is already consistent with what we see happening within the industry today. The regulatory environment continues to develop and compliance becomes a moving target, that will require banks to constantly re-visit, review and re-invest in their business processes and technology to improve efficiencies and curtail some of the increasing cost of compliance,” adds West.
Added to this, a total of 85 percent of respondents indicated that they follow a risk-based approach to compliance – particularly with KYC – that enables the bank to deploy resources in areas posing highest risk for the bank.
In terms of risk assessing customer relationships, for instance, the four factors rated the highest include; the nature of the customer’s business and background (94 percent), Politically Exposed Persons (PEP) status or links (92 percent), nationality/country of registration of customer (88 percent), the type of account and banking product for which customer is applying (78 percent).
The recent uprisings in North Africa and Asia dubbed “the Arab Spring” have resulted in heighted attention being focussed on the actions of ruling parties and persons within these ruling parties in the affected countries. This has also led to an increased focal point on potential PEP’s residing in these countries, resulting in a number of PEP’s being classified as ‘sanctioned individuals’ due to their association with the respective regimes.
In Africa, 90 percent of respondents indicated that they have specific procedures for identifying PEPs. West continues, “Effective PEP management is important to defend against any allegations of doing business with possible corrupt politicians. There is still so much that needs to be done in the field of PEP identification and management, especially on the African continent. Banks, for instance, need to clearly formulate their policy relating to PEPs, agree their approach at a senior level, and then implement the policy through robust procedures, using a range of methods to identify higher-risk PEP clients”
“AML continues to evolve, presenting a number of challenges to banks that are even more acute than those previously encountered and, there is a need for greater consultation and communication between banks and their regulators in respect of good practice. The challenge now is to ensure that the systems and controls put in place are effective in achieving the objective of reducing the amount of corruption or misuse of the banking systems for personal benefits,” concludes West.
Out of the 59 banks that responded to the survey, 35.6 percent were local banks with international operations and 25.4 percent were foreign owned banks. A total of 59.3 percent of the banks had a turnover, asset size deposit base in excess of US$100 million.