Senior Management Stepping up Efforts Globally to Combat Money Laundering

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 in ten of respondents (88 percent) said that AML issues are back at the top of the agenda for senior management rather than being squeezed by competing priorities as has been the case in similar studies over the past ten years (up from 62 percent in 2011).

 

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 failures 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,” says Brian Dilley, Global Head of the Anti Money Laundering Practice at KPMG.

 

Dilley notes that financial institutions are making significant changes in response to increasingly far-reaching global AML regulations; revision of the Financial Action Task Force’s recommendations and the U.S. Foreign Account Tax Compliance Act having an 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,” says Dilley.

 

Cost of Compliance Continues to be Underestimated
While the pace of regulatory changes is a big challenge for financial services firms, most organisations 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.

 

The top three areas where AML budget has been invested are: transaction monitoring systems; Know Your Customer (KYC) reviews, updates and maintenance; and recruitment. However, satisfaction for transaction monitoring systems is poor with 35 percent saying their system is not efficient or effective. Just over half of respondents said their system is able to provide the complete picture by monitoring transactions across businesses and jurisdictions.

 

Accurate cost forecasting is vital for informed decision making, but remains a key area of weakness due in part to the number of regulatory change announcements and the speed in which new regulations are expected to be implemented. Senior management is likely to continue to underestimate AML expenditure unless lessons are learnt from past mistakes.

 

Regulatory Approach is Fragmented and Inconsistent
With the volume of regulatory changes, questions are now being asked as to whether it is possible for a global institution to run a fully compliant AML program. Four in ten respondents (43 percent) indicated that a stronger relationship with regulators would be a welcomed change in approach, as compared to only 14 percent saying the same in 2011.

 

A quarter of respondents in Asia Pacific would like a less prescriptive approach, potentially due to the geographical spread of this region and the corresponding numerous and sometimes conflicting requirements.

 

A consistent regulatory approach was cited as the top AML concern, with 84 percent of respondents indicating that the pace and impact of regulatory changes are significant challenges to their operations. “Despite annual expenditure that is likely to exceed $10 billion in the next couple of years, institutions continue to fall foul of regulatory expectations, which seem to change more regularly than in the past. Minimum compliance with regulatory obligations is no longer enough to stay out of trouble, when you strive to meet a higher standard, but fail.”

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