Bankers in Asia Pac shrug off anti-money laundering

It’s clearly not a priority as only 27% of financial institutions discuss anti-money laundering at board level.

According to a 2011 survey of KPMG, banks’ focus on anti-money laundering or AML is being squeezed by other priorities.

KPMG said in a release, only 62 percent of senior management at the banks globally, said they consider this to be a top priority, compared to 71 percent in 2007. For Asia-Pacific or ASPAC respondents, that number is even lower, with 50 percent indicating that AML was either a moderate of low profile issue, in which the board of directors takes some or little interest. This was 12 percent lower than the global average.

Additionally, AML issues are discussed at board level by ASPAC financial institutions at least annually by only 27 percent, markedly less frequently than the global average.

The report, KPMG’s third global survey, highlights responses from 197 of the world’s largest banks. Participants included Heads of Compliance, money laundering reporting officers and heads of risk across 69 countries.

Kyran McCarthy, Head of Anti-Money Laundering and Sanctions Services, KPMG China, says: “Although it is understandable that boards have been focused on their survival and the wave of regulatory change, they need to ensure that AML remains top of the agenda, or else risk massive fines, business disruption and reputation damage, particularly in relation to sanctions compliance.”

“The lower public profile of AML in ASPAC may be linked to the fact that the level of public regulatory enforcement action in ASPAC has been less publicized than in other regions of the world. Additionally, in those ASPAC jurisdictions where the regulator has taken public enforcement action in recent years, the penalties applied have been relatively small by European and US standards.”

Transaction monitoring continues to be the biggest AML cost for banks however there is a level of dissatisfaction with the results, with less than one-third of respondents able to monitor a single customer’s transactions and account status across several countries.

The results also show that respondents in 2004 and 2007 underestimated future spend on AML. Respondents in 2010 estimate that AML costs will rise by 28 percent over the next 3 years, but have they underestimated it again, especially when the new US tax law – FATCA - is taken into account.

Recent events in the Middle East and North Africa meanwhile have intensified the focus on Politically Exposed Persons (PEPs). Survey participants in ASPAC stated that only 73 percent have specific procedures in place for identifying and monitoring PEPs on an ongoing basis, against 88 percent across the global survey.

Identifying domestic PEPs may prove challenging in Asia, as there are a number of complicating factors, such as local regulators in Hong Kong, China, Singapore and Japan releasing their own lists of undesirables or anti-social organizations that they don't want institutions to transact with. Evidence suggests that local institutions within these countries devote more time and resources to identifying those prescribed by the local regulators.

Kyran says: “Difficulties include the fact that there are many different types and definitions of PEPs. Additionally, in a number of countries in Asia, people tend to frequently change their names for a number of reasons, including feng shui. Without robust and frequently updated customer accounts, this makes it difficult to screen for individuals who are sanctioned and/or PEPs.”

The area of sanctions compliance that ASPAC institutions reported as being most challenging was that of trade finance, with 32 percent of respondents describing it as very challenging; this was ten percentage points higher than the global average. With a large proportion of global trade finance routed through ports in this region, this is an area of concern.

Meanwhile, thirteen percent of ASPAC respondents called for stricter enforcement of the AML regulations, against an overall average of seven percent. Kyran concludes: “In response to increased enforcement by regulators worldwide, banks in this region want to gain a better understanding of how these regulations should be implemented. Boards should demonstrate more commitment and greater investment to AML and regulatory compliance.”