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After the Panama Papers: Building institutional readiness for AML and KYC in Asia-Pacific

Michael Thomas, Senior Advisor, Wolters Kluwer | July 11, 2016

This vendor-written piece has been edited by Executive Networks Media to eliminate product promotion, but readers should note it will likely favour the submitter's approach.

The most recent news events such as the Panama Papers and the closure of private bank BSI in Singapore because of its links to scandal-hit Malaysian fund 1MDB in May 2016 have elevated Anti-Money Laundering (AML) regulations to arguably the region's top regulatory priority.

Building institutional readiness 

A global study published in December 2015 by the Association of Certified Anti-Money Laundering Specialists (ACAMS) found that 70% of institutions surveyed had increased AML staffing over the past three years, and most were planning to boost AML investment by double-digit percentages in the next three years. Respondents named rising regulatory requirements and changing regulatory expectations as the top operational challenges organizations faced in complying with AML regulations.

As compliance officers know, the fight against money laundering eventually boils down to KYC policies, which are among the most difficult of the new wave of regulations to enforce. And the stakes are high. Banks have been warned by large US clearing institutions that their US dollar-based accounts will be scrutinized by regulators if they do business with the wrong people.

To tackle this challenge, institutions will need to adopt a multi-track approach that combines technology, organizational change and the development of talent. The increase in regulatory actions and the size of the possible penalties makes it commercially viable (as well as wise from a reputational point of view) to enhance existing disparate systems so they are seamlessly connected and integrated with ongoing assessments and controls.

Complying with regulations is of course essential and following governmental guidance is increasingly important, to secure business reputations in such times of increasing government and public scrutiny.  

Financial institutions therefore need to pay particular attention to both regulations and guidance issued by authorities in countries in which they operate when assessing the suitability of AML solutions. Particularly in the Asian context, varying rules, standards and languages make it essential that solutions are flexible so that they can accommodate a wide variety of queries and be quickly adjusted for change.

It is also important that AML solutions are rule based, to ensure they quickly flag and respond to any newly identified potential risks. When trawling data for potential compliance lapses or irregularities, artificial intelligence (AI) solutions can cast a wide net but can generate many exceptions.

Rules-based solutions are generally easier to connect to existing processes and policies, and can be highly specific, ensuring a consistent approach and allowing gaps to be closed quickly when new risks are reported.

In addressing KYC obligations, connections to external data such as media reports and Internet searches  not typically held within a firm's operational systems will also be important. This requires the integration of core data with externally sourced information in a separate compliance database that will service solutions that identify and prevent financial crime and tax evasion, without compromising the efficiency of operational systems. 


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