European Union attempts to unite the continent’s anti-money laundering (AML) approach is unlikely, says Andrew Simpson, chief operation officer at CaseWare Analytics, as is the setting up of a centralised European AML regulatory body.
“Within the EU there is a possibility that you will have some jurisdictions that will co-operate with each other, but in terms of getting all jurisdictions on board, I think that is unlikely. Also, having a central body that would look at all jurisdictions in the near term, I don’t think that will be likely either,” says Simpson.
“In terms of sharing information across different jurisdictions there are other factors to consider. There are privacy considerations, it’s another big compliance area. So, how do you balance privacy at the risk of financial crimes. It’s not a simple problem to solve,” he says.
Last Wednesday, the European Parliament said its members had “serious concerns regarding the poor state of anti-money laundering rules within the banking union,” with there being calls for “a more unified approach.”
On January 10, the European Supervisory Authority multilateral agreement on the exchange of information between the ECB and AML competent authorities, which the ESA states is to “create a clear framework for exchanging information between the ECB and Competent Authorities (CAs)” and this “potentially will enhance the effectiveness of their supervisory practices.”
Difficulties in preventing member states or regulatory bodies from diving deeper than a standard that has been agreed upon during an AML crisis will ultimately hinder an EU-wide standard from being established, according to Daniel Wager, vice president, global financial crime compliance at LexisNexis Risk Solutions.
“The ECB - and they are not alone in this - is looking to advocate for more authority in ensuring AML regulatory compliance and overseeing the application of anti-money laundering rules,” says Wager.
“The EU is a much more complicated environment to operate in because of the significant differences in its constituents, as well as the breadth of the market and the offering therein. The statements that I have seen from the ECB, and from the parliamentary side on the EU as well as individual country-level regulators has been that they are looking to make sure that AML regulations are thoroughly and completely applied,” says Wager.
“That would be a good first step, that would ensure commonality, it would ensure a base line requirement. The problem is that when you have scandals like the ones that recently have arisen in certain EU member states, there always will be calls to say we have got to go further. But, every time someone goes further you have again created a disconnect, meaning there is no longer a common standard,” says Wager.
With the current regulatory environment, Wager says there is significant room for interpretations.
“The core of the problem is that the regulatory environment anywhere in the world is rarely prescriptive, granular detail on exacting standards that must be met. There is significant room for interpretations. Even when regulator entities are party to member bodies, in the EU you have the EU itself setting standards, even within those there is significant misalignment between jurisdictions,” says Wager.
For Evgeny Likhoded, CEO and co-founder of ClauseMatch, there is significant work to be done by banks in order to streamline AML due diligence processes, for the onboarding of customers.
“Within banks the reason why they cannot streamline the onboarding processes is because the communication between the different parts of the bank in different jurisdictions is today completely broken,” says Likhoded.
“If the head office decides, ‘ok we will follow the strictest AML rule that is applied to us in a particular jurisdiction. For example, if there are more relaxed rules in Spain than in the UK, then in Spain and the UK I will apply the strictest rule and I will communicate it down to every branch, this is what you need to do to onboard a client.’
“Of course, it is very difficult to adapt specific jurisdictional rules in every jurisdiction because then the bank, the headquarters don’t actually know if someone in a different jurisdiction is following the right rule. There is no way for a bank to track deviations from their policies, their controls internally.
“There is a lot that can be done internally within the bank in order for information to be tracked better and to flow better between different departments, different branches, different jurisdictions.”
For Simpson traditional banks that rely on siloed structures make investigating money laundering particularly difficult.
“The whole matter of looking at data being siloed in financial institutions (FIs) is particularly rampant. If you look at the fintechs, and the way they are building their entire customer experience is that they are getting away from silos because they don’t have that legacy,” says Simpson.
“A lot of the traditional FIs do operate a number of systems that have customer information, account information, transactional data in disparate systems, and none of these systems are speaking to each other. That creates a lot of problems in terms of silos, and incomplete information when you are investigating a customer, it’s a big problem.”