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Sanctions screening, tackling the regulatory minefield

Increasing criminal and terrorist activity, combined with a highly regulated environment, is evidence that financial crime is a persistent, global problem. In banking, a similar story is playing out with sanctioned entities still using banks to illegally transfer money from A to B.

Without a doubt, regulation has made a positive impact in the prevention of financial crime, but underneath there is a hidden minefield that if not addressed is only set to worsen.

As I see it, one of the main problems facing sanctions screening is the multiple and varying jurisdictional requirements that banks have to adhere to across the globe. In the US, the Treasury’s Office of Foreign Asset Control still bears the sharpest teeth as it has the right to act wherever there is US involvement and even non-US banks fall into its jurisdiction. This means the compliance task is vast in nature, making it increasingly difficult for banks to avoid penalties. In Asia, the Asia/Pacific Group on Money Laundering is committed to implementing the Financial Action Task Force’s (FATF) international standards for anti-money laundering and combating financing of terrorism, but each member country will have its own sanctions lists and its own reporting bodies. Closer to home here in the EU, the Economic and Financial Affairs Council (Ecofin) will work to establish common regulatory and supervisory standards and practices. While progress has been made with the FATF helping to create an international standard for payment transfers, individual country approaches still mean that AML regulation is a fragmented landscape and true uniformity cannot be achieved.

While one could argue that these collaborative governance efforts are certainly a step in the right direction, they don’t solve the issue of the complex compliance mesh for banks. The result is a continual struggle to keep up with the regulations, which compounds the challenge to understand them in the first place. Additionally the regulatory direction given to banks about what they can and can’t do isn’t clear cut, since the degree of interpretation will differ according to the risk adversity of each institution.

With this regulation ambiguity and complexity minefield only set to get more stringent, now -more than ever - is the time for banks to take the reins to tackle sanctions screening. By finding greater effective and efficient ways of screening, it prevents them being stung with heavy fines, or even worse, damaged reputations and we all know this is something no bank can afford to lose at the moment .

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