IBS Journal May 2015
‘Often in companies,
people are not living and breathing the regulations.’ Louise Main, Capco
a financial crime theme running through the entire day reflected the extent to which this is a hot topic. The ideal is to have effec- tive customer risk assessments because, at present, so much time and effort goes into managing all clients, not the 20 per cent or so that are truly high risk. ‘Data for all of us is a big challenge,’ comments Deane One benefit of automation is what
Cate Kemp, global transaction compliance director at Lloyds Banking Group, describes as the regulatory shift from ‘show me’ to ‘prove it’. This puts the onus on firms to demonstrate that they have in place effective steps and that they are continuing to invest in these. It is more or less a case of ‘guilty until proven innocent’, she says. In regard to culture, this needs to ‘start at the top’, she says. ‘If you don’t have that, it is no use how good your roadmap is, you can tear it up, to be honest.’ ‘The strengths of any set-up are
equivalent to the weakest link in the chain,’ says Jean-Marc Guiteau, global head of compliance operational risk at BNP Paribas. It is essential to understand the entire transaction and the patterns between cus- tomers and peer groups, with strong alert management. There is no escaping the ‘day in, day out, grunt work’, says Kemp. It needs a ‘top down, really rich, intelligence-driven approach that includes everyone who touches the client, including relationship managers’, she says. In terms of alerts, Deane admits that most banks spend 97 per cent of their time ‘chasing ghosts’ so there is still a great need to get rid of false positives. There is a particular challenge related
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to relationship managers and sales teams where, for so long, the priority has been on making money. Now, says Deane, they need to appreciate the importance of protecting the bank and the shareholders. One ray of hope for the industry is
that there could be a more collaborative approach to AML than in the past. The number of utilities that have sprung up of late is a sign of this but Deane believes that more is needed. An entity such as Swift sees a large proportion of the world’s flows in the payments and securities sectors, he points out, and this information on patterns and behaviour could feed into the banks’ alert procedures. ‘I don’t think we are doing enough of that as an industry yet.’ However, there is a danger of too many utilities, competing and duplicating efforts. ‘The utilities need to work out how they are going to work together,’ he says. Swift has moved firmly into the KYC/AML space with its KYC Registry and Swift Traffic Profile services (see front page) but these are early days and there are plenty of initiatives elsewhere. After Wolfsberg and the Fourth Direc-
tive, there will be many other regulations to come. The focus should not be merely on being compliant today, says Capco’s Main, but on putting in place an efficient and flexible set of processes and technol- ogy that will cope with whatever follows. Deutsche Bank’s Deane points out that the changing needs can come from ‘the mood of society’, which can move fast. He feels that the incorporation of tax evasion into the KYC space is a reflection of this. There is still the problem of widely
© IBS Intelligence 2015
www.ibsintelligence.com
varying requirements from national regulators, which means that a body such as the Hong Kong Monetary Authority might have little or no interest in low risk customers but another regulator will take a totally different view. Even the way regulators seek to classify customers varies across EMIR, Dodd Frank, MiFID and other regulations, although Deane feels moves within MiFID to look at using the Legal Entity Identifier offers some hope. The challenge is also exacerbated by
jurisdictional rules around privacy and data, which can limit the ability to share information across borders. There is also often a day-to-day issue related to banks sharing data, which has a direct impact on KYCC. Speaking at the Swift Forum, Thomas Piontek, head of regulatory services at Commerzbank, pointed out that the problem is often with large banks not small ones. The latter often have no option but to provide the information that is requested from their larger peers related to clients and transactions, but often there is no reciprocal flow. Some banks will simply conclude that
the safest option is to carry on their rapid retreat from particular jurisdictions and sectors. At least ‘the top of every financial institution gets it now’, concludes Deane. There has been so much pain that all of the large banks are putting ‘massive investment’ into this area. ‘It is no longer a Cinderella function.’ However, the real proof of whether or not banks are truly on the right track will only become evident over time, with this measurable in fines, headlines and column inches.
analysis: aml
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