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Effective AML compliance is an enabler: LexisNexis

Nurdianah Md Nur | Feb. 26, 2015
An effective AML system enables FIs to onboard clients quickly and safely, reduce risks across their organisations, and gain a better understanding of their customers, says Chrisol Correia of LexisNexis.

Those opportunities often coincide with political or social goals for financial inclusion by providing services to low income sectors of society or underbanked populations, which is an attractive area to be. However, because of the pace of technology change and the relative lack of barriers to entry to these activities, it is potentially a higher risk activity. So we're seeing a general trend of regulating these types of money transfer mechanisms. At the same time, many banks are being pressured to derisk their books or business. So we're seeing in certain regions of the world that it is becoming more difficult for these types of alternative payment service providers to secure financial services from banks because, very often, the risk of dealing with these types of institutions might be deemed to be too high. That's an area of concern to the global fore on money laundering, because there is a concern that if these new payment technology vendors are locked out of the financial system, they or their customers might move into a less regulated environment which could then become more attractive to money launderers or terrorist financing.

There is increasing pressure now to fully consider the risks of dealing with these types of companies. I think that if banks don't engage with these types of companies, it's likely that they themselves will become less innovative. Banks are sometimes being described as technological dinosaurs. These new payment technologies and new financial instruments are perhaps challenges to banks. Banks can't really ignore them; they need to adapt and participate or risk losing customers to services that offer more convenience and costs less. 

What are the challenges faced by FIs when it comes to combating ML and terrorist financing (TF) activities?
The challenges are ongoing; criminals follow the path of least resistance. So where banks build up defences, there will be organised crimes or efforts looking to circumvent those new barriers. Criminals are always looking for the weakest point of entry for the flaws into security infrastructure to enter into FIs either from the inside or from the outside.

That challenge is not new as such that's ongoing. So, FIs need to constantly monitor for new typologies and new types of schemes that might reduce money laundering risk. The second challenge is the increasing threat of regulatory enforcement, which is again not a new trend. What that trend does is to place growing operational load onto the operations of FIs. For example, I touched on the growing scope of definition of money laundering. That definition increasingly includes activities such as serious tax evasion.

The effort to combat bribery and corruption may also fall to a compliance department. At the same time, there is ongoing demand to implement increasingly complex CFT programmes. For example, we see the new measures targeting Russian interests in response to the situation in eastern Ukraine. These sanctions requirements are becoming increasingly complex and this requires FIs to allocate more effort and resource to ensure compliance. The ongoing challenge — and this is perhaps the most significant in terms of costs — is how all these risks can be addressed and managed without compromising compliance whilst maintaining a sustainable level of operational costs. Technology has a key part to play there, as does data. We are increasingly seeing the two being synchronized more tightly in order to provide greater efficiency and effectiveness.


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