January 30, 2014 - Senior financiers are worried about money laundering with 84% of the 317 anti-money laundering (AML) and compliance professionals questioned in the '2014 KPMG Global AML Survey' last quarter admitting that it is now a major concern in their business risk assessment and 88% commenting it is now top of their firms' boardroom agenda.
A third of the respondents also said, however, that their transaction monitoring systems are not efficient or effective enough.
The findings of the KPMG survey are not that surprising considering the heavy US regulatory fines levied against HSBC and Standard Chartered a couple of years ago for laundering Mexican drug money and Iranian trades, a trend that has continued in recent times with the UK Financial Conduct Authority (FCA) £7.6m fine on Standard Bank and many other such instances. The increased regulatory focus on AML and continuing large fines prompted SWIFT to launch its sanctions screening service and it was a hot topic at last year's Sibos 2013 trade show. Other non-proprietary compliance platforms in related areas such as Know Your Customer (KYC) stipulations are now being launched by KYC Exchange and the SWIFT KYC Registry in order to try to offer banks a cheaper service solution for a non-value-adding requirement.
Commenting on the survey, Brian Dilley, global head of AML practice at KPMG, said: "Anti-money laundering has never been higher on senior management's agenda, with regulatory fines now running into billions, regulatory action becoming genuinely license threatening, and criminal prosecutions of firms and individuals becoming a reality."
"Despite annual expenditure that is estimated to reach billions over the next couple of years, institutions continue to risk falling foul of regulatory expectations, which seem to change more regularly than in the past. Trying to get away with doing 'the minimum' is not good enough anymore - the only way to stay out of trouble is to meet the highest standards possible."
It seems some financial institutions (FIs) are reluctant to make the necessary investments to meet such a high standard on a solo basis, however, with an understandable leaning towards compliance shared service platforms to keep costs on this non-profitable activity low, while capital bases are improved in readiness for the coming Basel III capital adequacy regime. The trend is illustrated by outsourcing and offshoring becoming more common, with 31% of respondents saying they outsource and 46% saying they have off-shored at least some of their AML functions.
AML IT Concerns and Outsourcing
Satisfaction with transaction monitoring systems is poor with one in three of the respondents (35%) saying their AML systems are neither efficient, nor effective, perhaps prompting the focus on outsourced solutions. Worse still, only just over half of the AML professionals questioned said their systems are able to provide the complete picture by monitoring transactions across businesses and jurisdictions.
Accurate cost forecasting is vital for informed decision making, says the KPMG survey, but it remains a key area of weakness due in part to the large number of regulatory change announcements and the speed in which new regulations are expected to be implemented. The suggestion emerging from the data is that senior management is likely to continue to underestimate AML expenditure - and the amount of fines - unless lessons are learnt from past mistakes.
