1MDB - what more to say... a key lesson for financial institutions

Apart from the fact that the publications in the Sarawak Report http://www.sarawakreport.org/2016/07/caught-red-handed-by-the-fbi-pm-najib-razak-malaysian-official-number-1-is-fingered-by-the-doj/ will likely have a political impact there's a few more observations that we can make.

First and foremost: FIs need to do their homework and ensure that they know their clients, the case once more proves the risks of dealing with PEPs loud and clear.

Secondly: where smoke is, is fire... In other words: a CDD analyst needs to develop some 'fingerspitzengefuhl', a 6th sense to 'smell' if a client can be trusted and accepted as a client or not.

Both imply that every FI should have a working (! that means not just on paper...) risk based approach to onboard new clients and assess existing clients. Moreover, CDD, Customer Due Diligence, analysis can be taught, but knowledge alone doesn't make a good analyst. An inquisitive mind and an attitude to truly help the FI to understand its clients are crucial.

3 lessons on TBML

Following a breakfast meeting hosted by Accuity on Trade Based Money Laundering let me share a few observations from the presentations and the panel discussion:

1.       Accuity is leading the way in technological improvements – e.g. to detect dual purpose goods or detect over- or under-invoicing. However, technology can only do so much and has its limitations

2.    Regulators will continue to raise the bar. The fact that TBML is in the news so much is largely because the financial services industry has made traditional ML harder than before so other ways are sought. Regulators will increase their focus on TBML – as one panelist cited a comment from a regulator: “we know it’s hard and we don’t care“

3.    Lawyers and consultants can support financial institutions to interpret regulations and share best practices, but their added value is limited to (theoretical and high-level) advise

That leaves many institutions with the challenge to – with or without help from the above mentioned parties – define a risk based approach, which covers the front-office and trade finance operations alike.

If you need help or if you’re interested in a TBML course for your staff - call us at +65 9683 1451 or send a mail to info@i-kyc.com.

Integrity Means Business

Integrity Means Business

For i-KYC this is not an empty slogan. For us as a company of course all the work that we do is about integrity; the courses we provide, the implementation work we do and the advisory projects we’re involved in all revolve around business integrity, mostly in the field of financial and economic crime.

FEC exists because it still pays to launder money and there will likely always be terrorists looking for funds, how sad that may be. For banks, other financial institutions and more and more related service providers it’s a necessity to ‘get it right in the field of AML/CFT’. That means that not only that rules and regulations need to be translated into policies and procedures, it also means that staff need to be trained, that knowledge, skills and awareness need to be built and that procedures are implemented and controlled.

Integrity means business because no organization wants to implement all this and bring the business to a grinding halt. Effectiveness and control do not have to stand in the way of a customer service oriented institution and an efficient operation. If you want to find out more about how we do this, find more information on our website www.i-kyc.com or contact us at info@i-kyc.com . 

Trade Based Money Laundering – it’s a craft to fight it

Hong Kong is only one country where regulators are focusing more and more on TBML as can be read in this article http://www.gtreview.com/news/asia/hk-banks-warned-over-trade-based-money-laundering/ . TBML is less transparent and harder to detect than more traditional types of money laundering. As the article mentions “there is no rigid set of rules governing TBML, instead banks must take a risk-based approach”. That means that bank staff – governed by policies – need to take risk based decisions. It means staff have to build up knowledge and skills, not only understanding global trade flows and markets, but most of all building a deep understanding of the clients of the bank. As Sean Norris from Accuity is quoted “technology providers can help with a handful (… of the 40 potential red flags…) .. but the rest comes down to building a team that is knowledgeable and experienced in trade itself, rather than compliance.”

And that’s exactly what we at i-KYC help many clients with in our TBML training. Building teams and building knowledge and expertise on trade and money laundering.

We’re happy to share our experience – contact us at info@i-kyc.com.

A best-practice model for compliant banking

A best-practice model for compliant banking

In a recent article by Pjotr Kaminski and Kate Robu both working for McKinsey&Company an outline is given for a more structural solution to deal with ever increasing regulatory requirements and compliance challenges < http://www.mckinsey.com/business-functions/risk/our-insights/a-best-practice-model-for-bank-compliance >.

The title of the article is “A best-practice model bank compliance” but if all recommendations are implemented much more would be achieved than “bank compliance”. The framework will lead to what I’d like to call ‘compliant banking’ in the true sense of the word. So let me try and summarize the article and make some observations.

The article starts with the observation that “many banks still struggle with the fundamental issues of the control environment in the first line of defense…” we can’t agree more! On a daily basis we work with our clients to improve the behavior of the front office, but it’s still a long way for most institutions. Moreover the authors talk about the increased spend on compliance related programs often with little effect.

These and several other challenges can according to the article be addressed by following 3 principles:

1.      an expanded role of compliance and active ownership of the risk-and-control framework.

The idea here is that a compliance team should not just issue policies and give ad-hoc advice, the compliance function should be much closer to the business, manage risks and even have an eye for operational efficiency. Something we wrote about exactly a year ago < http://i-kyc.com/English/About-Us/blog/top-five-priorities-for-the-risk-and-compliance-function-2015.html >. In such a role a compliance team can actually be much more effective in building a compliance culture and be of more added value to the institution.

2.      Transparency into residual risk exposure and control effectiveness.

Most risk frameworks nowadays start from assessing inherent risk, followed by measuring the effectiveness of implemented controls, leading to insight in the residual risk exposure and subsequently deciding on actions to be taken if the residual risk is not within appetite. Most organizations know this in theory, but the whole framework is rarely implemented to the full. The article further suggests that the use of Key Risk Indicators – measuring the residual risk – would be much more effective than checking all the controls on a regular basis. If applied properly this all would give the institution a truly comprehensive view of its portfolio of risks and facilitates a risk-based allocation of resources

3.      Integration with the overall risk-management governance, regulatory affairs and issue-management process.

Not only would this enhance the overall risk view of senior management it would also lessen the burden on the business.

The article concludes with a 10-point scorecard to measure progress in the transformation of the compliance function. I’m not going to get into the detail of all these points, the most important is that institutions should realize there’s still a lot of work to do to make the compliance function the efficient and effective function it can be. Organizations can perform better, at lower costs and with better management of risks if the topics pointed out in the article are implemented.

Complacency is not the right answer to all the challenges, the framework in the article might be.

If you want more information or a discussion on how your organization is doing in this aspect let us know.

Rolf

Another MAS review

Late October the MAS issued a paper on ‘ENHANCING ANTI-MONEY LAUNDERING & COUNTERING THE FINANCING OF TERRORISM MEASURES AND CONDUCT’ following inspections of 300 FI’s done between September 2014 and January 2015 < http://www.mas.gov.sg/~/media/MAS/Regulations%20and%20Financial%20Stability/Regulations%20Guidance%20and%20Licensing/Financial%20Advisers/Circulars/CMI%20052015%20Circular%20to%20financial%20advisers%20on%20enhancing%20AMLCFT%20measures%20and%20business%20conduct.pdf >

Not surprisingly quite a number of issues were found; let’s look at some of the key topics mentioned. Ongoing monitoring of business relations is a key finding as well as the (lack of) frequency of training on AML/CFT. Furthermore, it was found that policies and procedures were not always properly formalized and not applied consistently.

Moreover, it was found that in respect of Identification and Verification not all obligations were always met, that risk assessment criteria were often not formalized and shortcomings in the screening of relevant persons were found. Other observations mention the absence of formal Service Level Agreements in outsourcing scenario’s and the lack of Quality Assurance around AML/CFT processes.

No real surprises here unfortunately; from our own experience we can concur with the findings. The clients that we work with have all made substantial progress in improving their AML/CFT framework, yet there always continues to be room for improvement. Some key areas that we see from our own perspective at i-KYC include the following:

-       formalization of policies and procedures – not only need policies be documented, they also need to be clear to all staff and they need to be embedded in day-to-day processes and procedures;

-       training, training and more training throughout the organization; at all levels and on all policies;

-       consistency in operational execution, supported by a quality assurance framework.

Many FIs still see AML/CFT measures as a burden hence the shortcomings found. For us Integrity Means Business and that implies we ensure policies are adhered to while the organization runs as efficient and effective as possible. That is the real challenge. 

I-KYC Singapore exists 2 years

I-KYC Singapore exists 2 years

A sincere “thank you” to all friends, partners and customers who have congratulated us on our 2 year anniversary. We started late in 2013 and we’re happy that the business has evolved beyond our hopes and expectations. We’ve done projects in Singapore, India and Indonesia and have worked with many institutions across the region. We can be proud of our achievements sofar and we look with confidence to the future.

Our slogan “Integrity Means Business” is making meaning to many organizations and more and more customers appreciate our knowledge, expertise and approach.

Thank you once again and we look forward to working with you.