Lack of confidence in your AML/CFT program? Why?

A substantial number of compliance officers (about 44 per cent) lack confidence in the anti-money laundering (AML) programs of their organizations, according to a new report

That’s an interesting finding since compliance officers are ultimately responsible for compliance of the whole organization in their role as MLRO. The pace and complexity of changes are mentioned as causes as well as insufficient clarity of regulations. Investments in AML programs have gone up and are expected to increase also because of ongoing technological innovations.

The article quotes: Nadim Najjar, managing director, Middle East and North Africa, Thomson Reuters: “The business of compliance, which in the past was seen by many as a mere tick box exercise, has become incredibly dynamic. It has evolved into a critical, demanding role that challenges executives to stay up-to-date and conversant with regional and global regulatory change and information.”

All the reasons make sense and we see many of our clients working hard to improve their AML/CFT policies, processes and procedures. What is not mentioned – and is often still not sufficiently recognized – is that interpreting regulations into policies is only the beginning of the implementation of an AML/CFT Program.

Implementing policies in all operational areas of a financial institution would need to cover branches, trade finance departments, customer service teams, relationship managers and transaction processing units. Where the compliance function sits in the 2^nd line of defense, a lot of heavy lifting in daily operation sits in the 1^st line of defense.

That’s exactly what we focus on. 

The bank’s responsibility or not?

The Financial Times last weekend reported on the MAS banning a banker from operating in the Singapore market for 10 years due to wrongdoings found in the 1MD investigation in this article . “Mr Leissner was found by the MAS to have issued an unauthorized reference letter, using Goldman Sachs letterhead, to a financial institution based in Luxembourg in June 2015.”

Two things are remarkable about this:

1.       Maybe 10 years is a long time but it’s ‘just’ a prohibition to work in Singapore. If you know how difficult it is to get a work permit in Singapore this can hardly be seen as a punishment. There are millions of people who want to work in Singapore and cannot. It doesn’t appear to be a harsh or severe treatment. Certainly not if you take into account that Goldman received 300 million in fees for the transaction of which mr Leissner without doubt got a handsome share.

2.       Secondly it’s puzzling that a person can be banned for doing something while his employer goes completely free. If a person is doing something that is not allowed he or she should be held accountable but if the person is doing that as an employee also the employer should be held accountable I’d say

Interesting..

4 crucial points to make AML/CFT work in any bank

The questions in this article this article are indeed often asked by our clients. The answers provided make sense but I’m not so sure that we can call these true innovations… AML requires a financial institution to interpret regulations and embed these in internal policies. That’s the easy part. The next step is to get the rest of the organization to read and understand the policies and to amend all SOPs to ensure the first line of defense, functions in accordance with the policies. That’s not rocket science either but it’s a lot of work, has wide spread implications throughout the organization and touches on the day-to-day activities of many employees.

As the author rightfully states: taking this challenge seriously can be done within existing budget and in our opinion and experience (!) can actually save money. Four key points need to be taken into account:

-          Define a proper Target Operating Model so that it’s clear who is supposed to do what across the 1^st LoD;

-          Ensure there is one (!) central owner for all operational execution of AML/CFT processes; even if AML/CFT operations is not centralized you still need single ownership over all AML/CFT work;

-          Focus on numbers and make sure your management information measures progress, turnaround time and effort just as well as quality and meeting the compliance requirements;

-          Automate wherever possible.

And a final overall piece of advice; take this whole exercise seriously and execute the change program to reach the target model rigorously. We have proven it with various clients: you can meet AML/CFT requirements and still operate at a cost efficient level and still be customer friendly.

RegTech – top 3 trends

An interesting evening hosted by Datarama yesterday. It’s always good to meet peers and we enjoyed an interesting talk by Nathan SooHoo from Trulioo.

Technology can and will change the way organizations handle regulatory challenges. The bulk of the work though for most FIs is not to get policies issued and rolled out; it’s about all staff to understand what the policy means for their day-to-day jobs and actually adhere to it. Without bringing the organization to a standstill. Many AML/CFT processes are still very manual, so there’s a lot to be gained, both in terms of customer experience and in terms of the cost of compliance.

So apart from block chain and sharing of CDD data across organizations what would be top trend number 3?

How positive is the FATF really about the AML/CFT environment in Singapore

Anti-money laundering and counter-terrorist financing measures in Singapore – 2016

Many have already commented on the report FATF mututal evaluation Singapore, we took some time to read and reread the report. In this article we’ve summed up our comments and take-aways.

It took a while to release the report apparently, the FATF onsite visit was almost a year ago (Nov/Dec 2015), perhaps because the findings are of a mixed nature. Most comments are quite positive but without being too pessimistic: many comments that indicate some substantial improvements are possible and needed.

Let’s start with the good news. Singapore is found to have “a highly sophisticated coordination on AML/CFT and FIs demonstrate a reasonably good understanding of ML risks”. The National Risk Assessment has provided a sound basis for private and public sector to understand ML/TF risks and specifically domestic measures in FIs are considered adequate.

Looking at the effectiveness ratings 4 areas score ‘substantial’, 6 ‘moderate’ and 1 ‘low’. The technical compliance ratings 18 areas score ‘compliant’, 16 ‘largely compliant’ and 6 ‘partially compliant’. We leave it up to the reader to decide if that’s good or bad.

Let me cite also some less positive statements from the report. “No adequate risk assessment was done on all forms of legal persons and arrangements.”  “Challenges were faced in executing MLA requests in a timely manner.”  “The national risk understanding reflects a disproportionate focus on domestic predicate ML and domestic FIs demonstrated a less sophisticated understanding of ML and TF risks facing them.” “Given the inconsistencies in both the NRA and the individual assessment of risk in FIs, targeting on the basis of ML/TF risks is not optimal.”

Skipping to the prioritized recommendations we can see a few trends:

1.       More focus on non-FIs.

2.       More measures targeted at specific risks – properly reflecting amongst others risks inherent to the nature of Singapore’s financial services industry in which 77% of the funds managed has a foreign origin.

3.       An approach which is less ‘just ticking the box’ and more focused on actual risks.

4.       More focus on complex and foreign predicate money laundering.

Combating financial crime is not easy – we all know that – Singapore has come a long way and as the report concludes the regulatory framework is sophisticated. Reading between the lines though, the report is not altogether that positive. Having a world class regulatory framework is by no means enough; FIs and other players in the financial markets will need to do more than just ‘tick the box’ and truly understand risks and implement programs to mitigate those risks; there’s more work to be done.

Much more.

Comments are welcomed at info@i-kyc.com

3 tips to reduce the cost of compliance

The following article by Piotr Kaminski is spot on and talks about all the things that i-KYC is practicing day in day out. It addresses the question “why do so many banks still don’t get it right after all these years and still face fines and regulatory sanctions”. The i-KYC consultants know all about this and help our clients day-in-day-out to address the issues.

Read the article and keep the following 3 pointers in mind

      1. The compliance team acts in an advisory and policy setting role – if an organization wants to seriously manage regulatory risks and lower the cost of compliance – it needs to solve fundamental control issues in the 1^st Line of Defense.

       2. The organization could or perhaps should form a team – in the 1^st LoD – to manage operational execution of AML/CFT processes and performsprocess walk-throughs, quality assurance on operational execution, efficiency monitoring and measures and manages customer experience.

       3. Don’t just tick-the-box but really manage the residual risks taking into account not only the policies in existence but also the quality of adherence to policy.

All companies face an increased cost of doing business as a result of increased regulation. How high the cost of compliance is, is not a given. It can be managed and reduced. 

If you want to know how…. Contact us at info@i-kyc.com or find us on www.i-kyc.com

Number of STRs doubled in Singapore

As reported today in the Today Online the number of STRs has doubled year on year. Interesting detail is that half of the STRs come from non-financial institutions. That means that the topic of AML/CFT is extending its reach into casino’s, money changers etc.; these sectors are getting their act together if we can believe the numbers. Traditionally regulators have focused on banks and other financial institutions recently putting more attention on Trade Based Money Laundering and the use of off-shore centers. The number of STRs from non-FIs indicates that regulators are extending their reach into other sectors.

A second interesting detail is the case featured of an individual convicted in a money laundering case. For those out there who think that money laundering is just ‘a minor thing’ this case might open some eyes. For receiving and transferring money – without actually knowing underlying details – the individual was sentenced to 9 months in jail.

Definitely not a minor thing…..