Survey: Businesses Focus On Anti-Laundering

June 11, 2014

Senior management’s focus on money laundering is at an all time high, according to findings from KPMG’s 2014 Global Anti-Money Laundering [AML] Survey, recently released by the Bermuda firm.

A spokesperson said, “According to KPMG’s survey report, anti-money laundering has never been higher on senior management’s agenda, with regulatory fines now running into billions of dollars and regulatory action becoming license threatening. Financial institutions are making significant changes in response to increasing global AML regulations, with the revision of the Financial Action Task Force’s recommendations and the U.S. Foreign Account Tax Compliance Act [FATCA] having an impact.

“These initiatives have quickly changed the AML scene from a standalone function under compliance, to an increasingly complex and overarching approach cutting across legal, risk, operations, and tax.

“Nearly 9 in 10 survey respondents [88 percent] said that AML issues are back at the top of the agenda for senior management, rather than being squeezed by competing priorities, as has been the case in similar studies over the past ten years [up from 62 percent in 2011]. The majority of respondents [84 percent] stated that money laundering is considered a high risk area within their business risk assessment, further emphasizing how seriously management deems failures to meet the regulatory requirements.

“While the pace of regulatory changes is a big challenge for financial services firms, most organisations are planning to invest more. In fact, costs continue to rise at an average rate of 53 percent for banking institutions, exceeding the previous prediction of a rise of 40 percent in 2011.

“The top three areas where AML budgets have been invested are transaction monitoring systems, Know Your Customer reviews, updates, and maintenance, and recruitment. However, satisfaction for transaction monitoring systems is poor, with 35 percent saying their system is not efficient or effective. Just over half of respondents said their system is able to provide the complete picture by monitoring transactions across businesses and jurisdictions.

“Accurate cost forecasting is vital for informed decision making, but remains a key area of weakness due in part to the number of regulatory change announcements and the speed in which new regulations are expected to be implemented. Senior management is likely to continue to underestimate AML expenditure unless lessons are learned from past mistakes.

“Other highlights of the survey’s results include the fact that financial organisations are crunched for time, with nearly one in five [16 percent] of respondents say they will not be FATCA-compliant by the IRS deadline of July 2014.

“Also, politically exposed persons [PEP] continue to leave organisations exposed. Financial institutions are more focused than ever on the need to exercise more scrutiny over PEP transactions, as evidenced by the degree of senior management involvement in the sign off process for high risk relationships; 82 percent respondents said this was the practice at their organisation.

“Sanctions compliance remains a sore spot; while more than 70 percent of respondents find sanction screening systems effective in their organisation, only 42 percent said they test the system for effectiveness at the implementation stage.

“There is room for improvement in the adoption of a global approach. Only 32 percent of the respondents who have a global policy are able to maintain global consistency across subsidiaries and branches.

“KPMG reports that though there have been some positive steps in coming to grips with the 21st century challenges posed by money laundering threats, regulators and the financial services industry continue to lag behind today’s globally connected money launderers.

“It is essential that regulators implement a consistent regulatory approach, but also foster a closer working relationship with industry professionals in order to leverage each other’s resources, aligning mutual interests in order to ensure that money laundering doesn’t pay off.

David Harper of KPMG Advisory in Bermuda’s AML practice said, “Bermuda regulators, intelligence agencies and law enforcement officers are ahead of the curve in this area in many respects. The timing of the release of the 2014 KPMG Global AML Survey means we will be able to share the sector based results at our annual AML Round tables to be held in July 2014.”

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