The cost of fighting money laundering has risen dramatically for banks across the world as they have become increasingly engaged in the struggle against criminality. However, the task is becoming more difficult due to the increasing complexity of the financial markets in which they operate, including greater exposure to sometimes unfamiliar emerging markets and the dramatic growth of alternative assets, according to a global study commissioned by KPMG International. (Global Anti-Money Laundering Survey 2007: how banks are facing up to the challenge)
KPMG’s study among 224 banks from 55 countries found that banks’ spending on anti-money laundering (AML) systems and processes has risen by an average of 58 percent over the last three years. In North America and in the Middle East and Africa, spending has increased by 70 percent or more. These increases are far in excess of banks’ own predictions when KPMG carried out its last study in 2004, when respondents on average predicted an increase of 43 percent. The biggest spending continues to be on transaction monitoring and staff training costs.
The salient points of the report include the following:
â— Spending by banks on anti-money laundering devices and procedures is up by nearly 60 percent since 2004
◠Banks’ senior management is more involved in the fight against AML
â— AML regulation needs to be better focused, six out of ten bankers that took part in the KPMG survey say
â— Transaction monitoring needs enhancing as bank staff remains first line of defence
Senior management are getting more involved in AML, with 71 percent of banks saying directors at the highest level are actively involved in it, up from 61 percent in 2004. Most respondent banks (85 percent) have a global AML policy, ranging from a high of 100 percent in North America to a low of 58 percent in the Middle East and Africa.
Concern
However, there is significant concern among banks that governmental and international regulation needs to be more effectively targeted. Half of respondents said they believe that while the overall regulatory burden is acceptable, the requirements need to be better focused, while nearly one in ten (8 percent) believe that regulation should actually be increased in order to combat money laundering more effectively.
In addition, there is evidence that transaction monitoring systems need to be enhanced. Despite sophisticated monitoring technology being available, 97 percent of banks say that they are dependent on the vigilance of staff to monitor and identify suspicious activity, and a third of banks (34 percent) say that they are not satisfied with the effectiveness of their transaction monitoring systems.
Karen Briggs, global head of Anti-Money Laundering at KPMG Forensic and partner in the U.K. firm, said: “Banks are clearly continuing to make increased efforts to tackle the money laundering threat effectively. These efforts are considerable, but nevertheless many banks are struggling to design and implement an effective anti-money laundering strategy. With international banks bolstering their presence in emerging market economies, and with a low interest rate environment driving growth in alternative assets including hedge funds, private equity and commodity investments, the need for more stringent anti-money laundering processes has only grown.”
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EU enlargement
In its report, KPMG also highlights the additional AML risks created by the enlargement of the European Union. Many of the countries that joined since 2004 have not historically had stringent AML processes in place and it is likely to take them some time to bring their processes up to the standards required under the EU Third Money Laundering Directive. Some banks may be particularly vulnerable to risks if their internal procedures are based on the assumption that all EU banks are low risk and accordingly apply less scrutiny to these relationships.
Brendan Nelson, global chairman of KPMG’s Financial Services practice and U.K. firm partner, concluded: “There is no doubt that a more even regulatory playing field globally would help banks coordinate their anti-money laundering processes more effectively. As the expansion into emerging and alternative markets continues apace, these challenges are only likely to grow.”
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