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Regulatory changes and fines call for smarter KYC-AML compliance

The financial services industry is facing more rules - and harsher consequences than ever before if they fail to observe them - notably in complying with anti-money laundering (AML) regulations for know your customer (KYC). 


In Singapore late last month, the UK Prime Minister David Cameron warned there was “no place for dirty money" in Britain, that his government would address ways to make property ownership and bidding for government contracts by foreign companies more transparent. “We want {to be} the most open country in the world for investment,” he noted, but the UK must not become “a safe haven” for corrupt money from around the world.

The tough talk and the pace of regulatory change is fast accelerating, just as the cost of compliance continues to rise. The global financial services industry has arrived at the point where compliance officers must assimilate on average 167 regulatory alerts per day – up considerably from 68 a few years ago – encompassing rulebook changes, policy statements, enforcement orders or announcements of fines, according to Thomson Reuters Regulatory Intelligence.   
Consequences of non-compliance keep growing: in 2014, the UK regulator alone issued £1.5 billion in fines; in 2013 the figure was £474 million. Worldwide since 2013, financial institutions failing to meet AML rules for KYC have been fined more than $10 billion. Less quantifiable is the reputational damage they incurred.

Banks and corporates facing sped-up regulation, higher fines and greater accountability need to embrace a “culture of AML and KYC”, founded on an integrated AML approach, the bedrock of which is a robust KYC programme. They must become front-footed and proactive in their approach, equipped to know their customer at all times, not just at the on-boarding and refresh stages of the process. 

Also critical is the integration and management of client data - accessing the right information about clients on demand, understanding and identifying the “risk flags” around AML as well as those that enable the funding of criminals and terrorists. 

With these capabilities, a financial institution can deliver an intelligent AML programme, with a customer record that provides a single version of the truth and the reference data from which all client decisions can be made. This integrated approach enables firms to go beyond traditional KYC activities and securely make payments and anti-fraud decisions.  Such a programme creates a holistic picture of risk, using analytics and benchmarks that truly enhance an institution’s culture of AML and KYC.

The industry has now begun to think and act smarter in managing KYC and reducing the adverse costs and impacts of failure.  Attitudes toward KYC managed services and utilities held by all participants – from banks to corporates and funds – have evolved from where they were 18 months ago.  

Banks are now more than ever standing on the front line against this kind of financial criminal activity, charged with the responsibility to identify and report suspicious activity as well as to deny criminals access to the banking system.  And clearly that means it is a joint responsibility for everybody in financial services to ensure only legitimate enterprises can participate in the financial system.

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Comments: (2)

Tapan Agarwal
Tapan Agarwal - Intellect Design Arena Ltd - London 04 September, 2015, 11:19Be the first to give this comment the thumbs up 0 likes

The good thing is that Artificial intelligence, machine learning and natural language processing technologies are now quite mature and enable faster and better AML and KYC compliance. 

Graham Seel
Graham Seel - BankTech Consulting - Concord 04 September, 2015, 17:13Be the first to give this comment the thumbs up 0 likes

Good comments, Steve. One minor quibble: I'm actually not sure reputational risk is such a big deal any more - everyone is being hit, so the playing field gets levelled. Of course frequent and blatant lapses would be another matter. Banks need to be focused on their KYC culture, data and tools as you say, and also on continuing to adopt, adapt and embrace technologies that will help with post facto and predictive AML monitoring. Emerging technologies such as amberoon.com's advanced analytics services (currently being developed to provide predictive enhancements to existing AML tools) will help with reducing false negatives (which lead to non-compliance) and false positives (which lead to excessive operational cost).