Attention being paid by senior management to money laundering challenges is at an all-time high according to findings from a new KPMG International Report. Nine out of ten respondents (88 percent, up from 62 percent in 2011) said that Anti-Money Laundering (AML) issues are back at the top of the agenda for senior management. A majority of respondents (84 percent) stated that money laundering is considered a high risk area within their business risk assessment, further emphasizing how seriously management deems failure to meet the regulatory requirements.
“Anti-money laundering has never been higher on senior management’s agenda, with regulatory fines now running into billions of dollars and regulatory action becoming genuinely license threatening,” said Philippe Fleury, Head of AML Services Forensic at KPMG Switzerland. “This is particularly true for Swiss banks, where the trend towards an automatic exchange of information is about to trigger important investments, not only to comply with new standards and tax regulations but also increasingly far-reaching global AML regulations. The revision of the Financial Action Task Force’s recommendations and the U.S. Foreign Account Tax Compliance Act are having a decisive impact. These initiatives have quickly changed the AML scene from a standalone function under compliance to an increasingly complex and overarching approach cutting across legal, risk, operations and tax,” said Philippe Fleury.
Additional highlights of the survey include the following:
- . While the pace of regulatory changes is a big challenge for financial services firms, most organizations are planning to invest more. In fact, costs continue to rise at an average rate of 53 percent for banking institutions. This exceeds the previous prediction of a rise of 40 percent in 2011. Senior management is likely to continue to underestimate AML expenditure.
- , while satisfaction for these systems has declined, with an average score of 3.42 out of 5 with regards to efficiency and effectiveness. In Western Europe, this level of satisfaction rises to 3.9 out of 5, which is the highest mark in the world.
- Financial institutions are more focused than ever on the need to exercise more scrutiny over PEP transactions as evidenced by the degree of senior management involvement in the sign-off process for high risk relationships (82 percent respondents said this was the practice at their organization). Besides, these organizations embed a differentiation process between domestic and foreign PEPs, from 57% in Western Europe to 80% in North America.
- Financial organizations are crunched for time. Nearly one in five (16%) respondents say they will not be FATCAcompliant by the IRS deadline of July 2014. But Western Europe seems to be the leader on his topic, with 61% of respondents expecting to be FATCA compliant by July 2014, which is the highest percentage compared to the rest of the world (46%).
- European financial institutions have less concerns due to testing their sanctions screening system. In Western Europe, 43% of respondents reported testing their sanctions screening software during implementation and not anymore after that against 20 % in the USA. Consequently, 31% of respondents report annual testing in Western Europe against 60% in North America.
- AML is increasingly becoming a higher focus of interest for top management. In Western Europe, the interest of senior management in AML issues strongly increased between 2011 and 2014, from 55% to 90% of respondents stating that this topic is henceforth an active interest of high profile.
With a focus on Switzerland, the results of this global survey lead to the following conclusions:
- Focus on national PEPs will rise as required by the proposed amendments of the Swiss Money Laundering Act. Swiss legislation is in line with international expectations on this point.
- The transaction monitoring system is still not perceived as being fully satisfactory for the majority of Swiss banks. This will be an area of focus and cost spending for them in the near future.
- Costs of compliance are going to rise in Switzerland as well, following the same trend as the global one shown by the survey.
- We expect AML to become one of the top priorities for the management of Swiss banks, as focus from the regulator and the potential damages to reputation in cases of trouble are rising.