Banks seem to struggle on applying anti-money laundering controls, despite their obvious determination to not break the law and support initiatives to stop criminal activities and terrorist funding. Even the biggest banks have problems, as the UK’s financial
reported in December 2021.
The regulatory pressure to focus on know-your-customer (KYC) processes is only going to increase. For example, the UK government completed a consultation into money laundering regulations in July 2021. The changes are intended to keep the UK in step with
international standards as well as further strengthen and clarify the regulations. The final report is due out in June 2022, and of course, this only applies to one jurisdiction. Other countries and regional bodies like the EU have anti-money laundering rules
under constant review.
Given the body of existing and upcoming laws on anti-money laundering, banks should not miss fraudulent financial behaviour or even examples of terrorist financing. It seems obvious that banks should refuse to approve payments if the payer cannot show the
source of funds for example.
When you look at the cases brought by regulators there are some common themes to why banks have not performed well on AML.
In one case investigated by the FCA, there was a huge delay in know-your-customer checks that needed to be done to be compliant with anti-money laundering rules. There
clearly needed to be a review of the processes involved in KYC.
There can be an over-reliance on human scrutiny to almost literally smell a rat. In one case prosecuted by the FCA, branch staff raised suspicions about the money being deposited, noting it smelt odd and musty. But relying on humans to spot money laundering
is difficult when such expertise is in short supply. And the oversight and cross-checking processes can fail to follow up if not supported with robust systems.
Given the volume of complex data analysis that needs to be undertaken quickly and the increased risks of non-compliance leading to reputational and financial loss, banks need to reach out to technology to provide a solution. Ideally this is about how technology
works in conjunction with humans to track where money has been to spot money laundering and do those KYC checks thoroughly and swiftly.
But technology cannot be a solution if it is not agile enough and if it cannot meet the challenge of accessing and using real-time data. Money laundering regulations are very dynamic and there can be different rules and requirements in every territory. These
aren’t always consistent and are often being changed and adapted.
This is why banks, who are looking to do the right thing, treat AML as more than just a tick box exercise and ensure it is integrated into their operations seamlessly and without disrupting honest customers. They need to think about real time data and integration
capabilities as well as the ability to apply predictive and adaptive models to a process. These empower a bank’s AML experts to carry out rule changes robustly and quickly, ensuring KYC and other AML check guards are always in place and accurate.
Let’s hope that this year, the cases of banks slipping up on AML start to fall as more institutions invest in better processes, skills, and systems to get on top of this problem.