Kevin West, Head of Anti-Money Laundering at KPMG comments, “Although it is understandable that boards have had to change their agendas because of the pressures resulting from the financial crisis, they need to ensure that they are addressing their money laundering risk and AML compliance requirements. Not doing so could lead to disruption within their business and the possibility of facing the wrath of regulatory scrutiny. Although AML is a well-established compliance task, it is continuously evolving and becoming more complex. Its importance in managing severe regulatory and reputational risk cannot be underestimated.”
KPMG’s survey also found that the operational costs of AML have risen by an average 45 percent since 2007, with a further 28 percent rise predicted over the next three years. However, many AML professionals have a history of underestimating future costs. In 2007, less than 17 percent predicted a rise of 51 percent or more, yet almost a third (31 percent) said their costs had actually risen that much when looking back over the same period.
“Operational costs of AML are going to increase over the next couple of years. Risks need to be managed and reputations protected. The number of fines being handed down to banks and financial institutions that are non-compliant with regulatory requirements appear to be increasing, especially on the international front. These fines are large and this trend is likely to continue in the future. South Africa has also recently amended its own AML legislation, giving supervisory bodies more power to ensure compliance,” says West.
Despite this rising expenditure in the operational costs of AML, only 10 percent of respondents have off-shored or outsourced parts of AML functions - 80 percent have never considered this as an option. Banks should consider which aspects of their AML programme they are willing to off-shore, as this could reduce operational costs.
The survey also included ‘anti-bribery and corruption activities’ for the first time. This was immediately ranked the third-largest area of expenditure, indicating that the extra-territorial reach of, and heightened regulatory expectation associated with, the new UK Bribery Act and the US Foreign Corrupt Practices Act is having an impact.
Politically Exposed Persons (PEPs) are enjoying increasing attention, not only in the Middle Eastern and North African regions, but also in South Africa. Since KPMG’s 2007 survey, the number of respondents with formal processes to identify and monitor PEPs has increased from 71 percent to 88 percent.
West continues, “Although PEPs are currently only mentioned under the Guidance Notes to the Financial Intelligence Centre Act and its Regulations, they are likely to be included as part of legislation in the future. We have noted that financial institutions in South Africa are including PEPs as one of the risk factors to consider in their risk framework.”
“According to international best practice, banks must justify their relationships with PEPs and understand the nature and source of funds that are passing through the institution.”
197 Heads of Compliance and other senior executives in banks were interviewed across 69 countries at the end of 2010.