Money laundering concerns rise on management agenda

But concerns remain over monitoring systems, regulatory change

Senior managers are more focused on money laundering, but a third of executives believe that their transaction monitoring systems are neither efficient nor effective, according to KPMG’s Global Anti-Money Laundering Survey 2014. 

Satisfaction with the transaction monitoring systems, which represent the area of highest AML spending, has declined. Costs continue to rise at an average rate of 53 percent for banking institutions, exceeding previous predictions of a rise of 40 percent in 2011. 

KPMG said 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.  

Nearly nine of 10 respondents (88 percent) say anti-money laundering is a priority for senior management, and a majority of respondents (84 percent) stated that money laundering is considered a high risk area within their business risk assessment. In part, this may be a reflection of significant fines imposed on banks in 2013 for failing to meet regulatory requirements. Europe’s largest bank HSBC paid US$1.92 billion in 2013 to settle U.S. charges it allowed Mexican and Colombian cartels to launder drugs proceeds. 

“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 genuinely license threatening,” said Brian Dilley, global head of the Anti Money Laundering Practice at KPMG. “Financial institutions are making significant changes in response to increasingly far-reaching global AML regulations; revision of the Financial Action Task Force’s recommendations; and the U.S. Foreign Account Tax Compliance Act having an impact. These initiatives have quickly changed the AML scene from a stand-alone function under compliance, to an increasingly complex and overarching approach cutting across legal, risk, operations and tax.” 

With the volume of regulatory changes, running a fully compliant AML program globally is becoming more difficult for international institutions. A consistent regulatory approach was cited as the top AML concern, and the pace and impact of regulatory changes is the most significant challenge for 84 percent of organizations. Four in 10 respondents (43 percent) indicated they would welcome a stronger relationship with regulators, compared to only 14 percent in 2011. 

Despite concerns about oversight, control and data confidentiality, outsourcing and offshoring are becoming more common. To date, 31 percent of respondents have outsourced and 46 percent have off-shored some of their anti-money laundering functions.  

Although annual expenditure is likely to exceed $10 billion in the next couple of years, institutions continue to fall afoul of regulatory expectations, which seem to change more regularly than in the past, said Mr. Dilley. “Minimum compliance with regulatory obligations is no longer enough to stay out of trouble, when you strive to meet a higher standard, but fail,” he noted.  

“Despite some positive steps and evident strides 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,” he said.  

“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.” 

Finally, the survey found that a significant number of institutions (16 percent) say they will not be FATCA-compliant by the IRS deadline of July 2014. 

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