Anti-Money Laundering (AML) compliance is one of the top issues faced by financial institutions; AML takes up a lot of time, money and resources, is complex and has effects across the organization, and is a significant risk factor, as mistakes can lead to huge fines and reputational loss.
Compliance faces complex challenges when dealing with AML. There are ongoing regulatory changes that require analysis, and new processes. Legacy technologies and systems that aren’t built for present-day demands, let alone future requirements. And, compliance has to work with and satisfy numerous departments, teams and bureaucracies that have different points of views and agendas.
Getting buy-in from the board is probably a good first step. According to the recent 2017 Global Anti-Money Laundering and Sanctions Compliance Survey, 20 percent of the respondents do not train their boards on AML and sanctions compliance. To properly fulfill the fiduciary duty requires comprehension of AML compliance. Providing adequate training to the board will help in their oversight functions, as well as help them understand the issues that compliance face on a daily basis.
Leadership from the top will help align compliance with the overall business objective, ensuring the values of compliance — such as good governance and effective risk mitigation — take hold throughout the company. Having leadership establish a compliance culture will help in having information sharing throughout the organization, ensure adequate resources are provided, and keep costs in check as the whole company is assisting in the process.
Transaction monitoring was mentioned by the most respondents — 50 percent — as the most challenging area. As transaction monitoring is the most cited challenge, it’s not surprising that 54 percent of the respondents identify automated transaction monitoring and filtering programs as their top priority investment.
However, as one respondent pointed out, “We recently upgraded to a state-of-the-art transaction monitoring system. However, our Know Your Customer and customer due diligence processes have not been fully updated, so we can’t take advantage of all the new system’s capabilities.”
Customer due diligence (CDD) was mentioned by over 70 percent of respondents as either somewhat challenging, or very challenging. In a similar vein, over 80 percent of respondents stated due diligence on third parties or other business partners as either somewhat challenging, or very challenging. While the survey doesn’t dig deeper into this aspect, obviously with those numbers, there’s a huge problem with properly identifying the potential customer, understanding their activities and assuaging the risk.
One recommendation from the report is to integrate numerous functions into the transaction monitoring system. For example, incorporating know your customer, customer due diligence, and enhanced due diligence information into the transaction monitoring system allows that information to flow across the organization for the entire customer lifecycle.
As the survey points out, “Ideally, a financial institution should be in a position to obtain a complete view of its risk levels by monitoring and sharing its customers’ transactions across businesses and potential jurisdictions.”
The problem though, is that this might entail purchasing a new system entirely. Keep in mind the long term though; while taking the plunge is a large expense and takes significant implementation time, a new system that is adaptable, promotes automation and reduces risk and staff requirements is an overall win.
However, a new system is not the only option. An alternative is to update and evolve the existing system, using new APIs to link various functions. It really depends on what your technology stack is and what your migration plans are.
The survey goes on to look at other AML considerations such as training, talent and the look ahead. The 2017 Global Anti-Money Laundering and Sanctions Compliance Survey is an interesting, informative examination for anyone interested in what AML compliance professionals are thinking, the problems they face, and potential solutions.