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Following on from our previous surveys in 2004 and 2007, we asked senior AML and compliance executives from the biggest banks around the world what they see as the key trends and challenges in their work right now.
We also wanted to find out how they thought their work had changed since the last survey – which happened in 2007 just before the global financial crisis hit – as well as how they think the future will look for them in their changing regulatory landscape.
We had 200 executives from across 69 countries participating, making this the most comprehensive survey of its kind.
So let's take a look at the key findings.
Firstly, we found that Board level interest in anti-money laundering is being squeezed out by other priorities. This is despite costs increasing by an average of 45%.
On one hand, this is both understandable and expected given the urgent competing priorities banks are facing in areas such as capital, liquidity and systemic risk. However, AML remains a vital area of regulatory compliance and reputational risk, so it must remain on Board agendas.
More worryingly, our analysis shows that many AML professionals have consistently under-estimated how much the cost of AML activities will increase year on year. This has consistently been the case going back to our first survey in 2004.
In a cash-constrained environment, it is imperative that AML professionals forecast realistic costs to the board: not only because of the significant risks that need to be managed, but also so they continue to retain credibility with boards who won't take kindly to repeated requests for additional funding."
Politically Exposed Persons, or PEPs, are now a major focus for almost every bank we surveyed, which wasn't the case at the time of our last survey.
PEP risk is now universally used as a risk factor, and most banks have specific procedures in place to identify and monitor PEPs on an ongoing basis.
With the so-called Arab Spring across parts of the Middle East and North Africa, and gathering momentum on fighting global bribery and corruption, PEPs will continue to be a focus for global regulators.
The challenge for banks is that in some cases, PEPs have become sanctioned parties or persona non grata overnight and global authorities have scrutinized past transactions with PEPs with whom they had previously encouraged business.
Banks need to ensure that they can justify their relationships with PEPs, particularly with an eye to future changes in their political standing. They should always be asking where the PEP obtains the funds that are passing through the institution, and be ready to explain the purpose of the transactions that they are undertaking.
Our results on sanctions compliance were less positive. Many banks are finding core sanctions tasks either challenging or very challenging, with client screening and handling of hits from filtering systems topping the list of tricky processes. Given the huge importance that national governments are attaching to this area – spearheaded by the United States – and the size of fines we are seeing for non-compliance, banks need to really focus on getting these processes right. Sanctions is often described as a 'nuclear' risk by banks – one of the few risks that could bring the bank to its knees. This is not going to change any time soon.
As far as transaction monitoring is concerned, we found many geographical regions were less satisfied with their transaction monitoring systems than in 2007, despite a similar aggregate rating globally. Monitoring transactions for suspicious activity was cited as the most costly and time-intensive AML activity, so it is disappointing that the expenditure has resulted in lower satisfaction. Our respondents cited many potential areas for improvement. The most concerning result from our perspective was that less than one third of banks are currently able to monitor a single customer's account across more than one country. As regulation becomes more global, banks will have to improve this position.
Our survey found that KYC information is now refreshed by almost all banks, although their approach to doing so varies greatly – both in terms of frequency and method. Almost all European banks have some form of remediation activity underway. These costly exercises can be avoided with a robust periodic review programme, and we would expect these programmes to be more prevalent and consistent in future.
More encouraging is that three quarters of banks surveyed now identify all company directors as part of their core KYC due diligence (although they only verify the identity of a subset). This improves the sanctions screening processes and is an emerging expectation of global regulators.
Finally, we were pleased to discover that banks generally support what regulators around the world are doing to ensure that AML work is effective. However, it was also clear that banks would like to work closer with regulators, and share information better, to further improve that relationship. Bearing in mind how active regulators remain in AML and sanctions compliance, along with the significant risk and cost attached to non-compliance, this is something we would certainly support.
It is clear that most have banks have continued to commit significant resources to addressing AML risks and issues. Furthermore, despite the other pressing issues dominating senior management's attention (including at times the very survival of their businesses), AML continues to have traction at a senior level albeit somewhat reduced from the pre-crisis situation. On the face of it, the signs are that the banks have stepped up to meet their obligations.
The challenge now is to ensure that AML remains on the top table, amongst the mass of other regulatory change facing banks. Taking their eye off the ball now will have major consequences in the future, so they would be well-advised to maintain their focus and ensure they continue to fight financial crime effectively.
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