Deloitte report reveals that Private Banks need to overhaul their AML processes
South Asian financial institutions (FIs) reportedly need to revamp their anti-money laundering (AML) processes in the face of heightened regulatory expectations, according to the results of the Deloitte South Asia Anti-Money Laundering Preparedness Survey.
According to the report, many banks and FIs have been predominantly reactive in their approach to tacking cases of money laundering, tending to have understaffed teams, meaning that they are on the back foot when dealing with red-flag-raising cases, and possessing a ‘if you could have known, then you should have known’ attitude, according to an article by Business Standard.
The report notes examples of risk management approaches across FIs’ businesses, pointing to siloed applications of risk management across banking operations, customer due diligence, sanctions screening, and trade-based transactions as the root cause for systemic inefficiencies leading to fraud.
The survey also reports that many banks face challenges in meeting heightened regulatory expectations pertaining to AML and enforcing AML processes. This is despite over 80% of Indian, Sri Lankan and Bangladeshi respondents indicating that their AML programmes were compliant with regulatory requirements.
The challenges noted by the report include the likes of reliance on manual processes, inadequate data, and the inability to recruit or retain skilled staff.
KV Karthik, Partner, Forensic, Financial Advisory, Deloitte, said: “Historically, AML programmes have been incident-driven with lean teams to manage response to events, or changes in regulatory developments. But that is no longer adequate today. With increased regulatory scrutiny, banks need to move to a proactive approach to demonstrate their compliance to avoid fines, rather than rely on the traditional reactive approach.”
The report also highlights respondents’ challenges with technology solutions, namely high instances of false positives, issues with data accuracy or unstructured data, limited integration with legacy or core banking systems, and incomplete coverage across the FI’s products and processes.
Furthermore, regarding sanction screening, almost 60% of respondents stated that the struggled with the volume of false positives, as well as stating they struggled to handle the ever-increasingly complex task of negotiating growing sanction lists.
In regard to trade-based money laundering, 86% of respondents stated that they screen trade finance transactions against internal lists, regulatory lists, and sanctions lists. Furthermore, respondents stated that challenges, such as identifying hidden relationships between trade partners and ports, estimating pricing and invoicing of goods, and unavailability of a single automated system that can combine all screening data, as hindering AML processes in this area.
“Regulators today expect banks to have a consolidated view of customer transactions across businesses and jurisdictions, to identify any unusual transactions and behaviours, or potential sanctions violations. The current technology frameworks may pose a challenge to doing that and banks need to take a strategic and longer term view of technology investments,” commented Karthik.
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