With the Fourth Anti-Money Laundering Directive coming into force and no silver bullet to overcome the compliance challenge, Colin Bristow, fraud & anti-money laundering specialist at SAS UK & Ireland, has warned that financial institutions face risk caught off-guard on Monday.
‘Financial institutions have been preparing for the change in AML requirements for years but the 4th Directive will still catch a few firms off-guard.
‘In response to stricter and broader rules on customer due diligence (CDD) and politically exposed persons (PEPs), approaches have been largely inconsistent. Many have simply bulked up their compliance teams to manage substantially increased workloads or increased the number of monitoring scenarios to meet the need for accurate record-keeping and monitoring.
‘While there is no silver bullet to overcome the compliance challenge, a bank’s failure to detect or report money laundering activity threatens to have an enormous financial and reputational impact. We are entering a new era that recognises how money laundering continues to destroy value, facilitate corruption and enable criminal activity. What’s needed is a review of the risks posed by doing businesses in a much more stringent regulatory environment.
‘Outdated transactional monitoring systems and approaches to case identification need to be revamped. Inherent characteristics, or ‘risk attributes’, such as net worth, product usage, average transaction amount and volume of transaction types should be used to group together segments of customers and determine risk-based settings. This, in turn, focuses alert generation toward risk-based thresholds and identifying those activities that pose the most risk.
‘With the ratification of the 4th AML directive, financial firms must ensure that they are fit to do business with a well-designed detection process and an accurate view of customer behaviour. Otherwise they face damaging consequences and wrath of the regulator.’
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