Banks' AML procedures struggling under regulatory change

Banks' AML procedures struggling under regulatory change

Author: Jessica Meek Source: Operational Risk & Regulation | 01 Feb 2012

Experts warn that banks are unable to keep their AML programmes up to speed because of changes in regulation

Banks are struggling to keep up with their anti-money-laundering (AML) procedures because of constant changes in regulation, say industry sources.

"Meeting the expectations of multiple regulators consistently is extremely challenging when each of them might have different regulatory priorities that shift from year to year, often at the whim of political expediency," says James Lightfoot, senior manager at accountancy firm BDO's forensic accounting unit in London. "Banks have to resource-plan several years ahead, which requires a reasonable, but rarely found, level of certainty over the regulatory landscape in which they operate."

Banks might also come unstuck because what is deemed to be legal and accepted as best practice at one point in time can shift quickly, leaving them exposed.

"It depends on what the rules are at the time, doesn't it?" says one banking source. "What was legal and best practice 10 years ago has moved on, so you keep moving the boundaries."

Experts also warn that the risk of managing transactions on behalf of entities in countries believed to sustain corrupt and criminal activity might not be as great as the reward. "The amount of fees generated from doing business with a high-risk entity might outweigh the risks of non-compliance with a particular regulatory programme," says Malcolm Taylor, London-based director at software provider BankersAccuity.

He warns that regulators need to engage in greater scrutiny of banks' AML programmes and continue to punish offenders with large, public fines. "This should also include particular focus on the board members of those banks to ensure they are making the necessary resources available to adequately address these issues," he adds.

There are also issues for banks' AML procedures because of the current economic climate, according to BDO's Lightfoot. "Tough times mean tough choices," he says. "How is a bank to prioritise sufficient finite resources to AML when it is placed under considerable pressure by the perfect storm of economic factors and regulators and governments demanding focus on liquidity and stability and other regulatory risk?"