According to KPMG’s 2011 Global Anti-Money Laundering Survey board level interest in anti-money laundering is being squeezed by other priorities. The survey, the third of a series, revealed a nine percentage point drop in boards considering anti-money laundering to be a high profile issue, down from 71 per cent in 2007 to 62 per cent in 2011.
The release of this survey is timely for Maltese banks as they review their procedures to bring them in line with regulatory requirements – Juanita Bencini, KPMG partner
However, money laundering remains both a significant risk and a significant cost, with failure to have adequate anti-money laundering programmes presenting a major threat.
Consistent with its predecessors, the survey found that the operational costs of anti-money laundering had risen by an average of 45 per cent since 2007, and there is no sign of respite as a further 28 per cent rise is being predicted over the next three years.
Brian Dilley, global head of anti-money laundering at KPMG said: “In a cash-constrained environment, it is imperative that anti-money laundering professionalsforecast realistic costs to the board, not only because of the significant risks that need to be managed, but also so they continue to retain credibility with boards who do not take kindly to repeated requests for additional funding.”
The survey also revealed an intensified scrutiny around Politically-Exposed Persons (‘PEPs’). The EU Third Money Laundering Directive, implemented in 2007 to require banks to monitor PEPs, has had a clear impact, as the number of European institutions with PEP-related monitoring procedures rose from 65 per cent in 2007 to 94 per cent in 2011.
“Globally, institutions have had the foresight to up their game by adopting a risk-based approach to knowing your customer, as the majority now use PEP status as a risk factor. It is imperative that banks ensure that they can justify their relationships with PEPs, whilst always asking where the PEP obtains the funds that are passing through the institution, and be ready to explain the purpose of transactions that they undertake,” the survey points out.
The monitoring of transactions to ensure that they are consistent with the institution’s understanding of the customer has been a cornerstone of anti-money laundering systems and controls, along with robust account opening procedures, for much of the last decade. This notwithstanding, the study has raised questions with respect to transaction monitoring.
“Overall, respondents’ satisfaction with transaction monitoring was found to be relatively low, at an average score of 3.6 out of 5. The inability of an institution to monitor transactions across different countries calls into question its ability in managing the expectations of regulators in whose jurisdictions it operates,” it said. The survey found that respondents still feel that more collaboration between stakeholders is needed.
“The challenge for the next three years is to ensure that the overall objective is not lost, and that the systems and controls in place are effective in frustrating those seeking to abuse the global financial system to further their own illicit ends.”
The survey found that an institution can derive a commercial advantage over its rivals if it knows its clients. Anti-money laundering processes were found to be critical to determining objectives and prioritising spend, even more so given that anti-money laundering plays a central role in informing a bank’s risk appetite.
Participant organisations stressed the need for management to feed what they can learn from anti-money laundering related data, issues and challenges directly into the risk appetite debate, with this being escalated to risk and audit committees where necessary. Against this backdrop, the survey concluded that senior executives are duty-bound to better understand the inter-dependencies and linkages within a bank, and should hence reflect carefully as to how to use anti-money laundering compliance more strategically as a tool to manage risks.
Juanita Bencini, a partner at KPMG in Malta heading risk consulting advisory services, expressed her satisfaction with the local participation in the survey: “We are proud that Maltese banks are also represented in this global survey, having made their voice heard on issues being very much at the heart of our banks’ concerns. This confirms our growing importance in Europe”.
Ms. Bencini confirmed that locally most banks have continued to commit significant resources to addressing anti-money laundering risks and issues, even more so in the wake of the pressing need to abide by the Financial Intelligence Analysis Unit’s Implementing Procedures.
“The release of this survey is timely for Maltese banks as they review their procedures to bring them in line with regulatory requirements. Banks will realise that their issues are the same as those of their European counterparts,” she said.
The survey can be accessed at www.kpmg.com.mt