How FIs Are Taking Anti-Money Laundering Precautions

anti money laundering

With one of the world’s biggest money laundering scandals just a few months old, it’s a fitting time to look into the state of security and compliance.

Money laundering is estimated by the United Nations Office on Drugs and Crime to be an $800 million to $2 trillion-per-year problem, equivalent to 2 percent to 5 percent of the global GDP. Yet only 1 percent of proceeds from financial crimes is intercepted.

In the wake of the aforementioned scandal, the chairperson of Swedbank stepped down and the former chief executive of Danske Bank was charged in the money-laundering probe. Swedbank repeatedly denied problems with its anti-money laundering (AML) procedures, which turned out to not be the case.

Replacing leadership might be symbolic but it’s not enough to regain trust. Financial institutions (FIs) would be well-served to also implement new anti-money laundering (AML) and know your customer (KYC) tools.

Anti-money laundering (AML) controls can have a larger impact on financial institutions than it might appear. A recent Fitch Group Inc. report looked at factors that can impact a corporate credit score and found that poor AML controls had more bearing on credit scores than a firm’s labor relations, management strategy and energy management, along with other factors.

In the latest AML/KYC Tracker, PYMNTS studied current anti-money laundering (AML) and know your customer (KYC) tools and how financial institutions are implementing them.

At first glance, there is not much cause for celebration. A majority (61 percent) of AML compliance professionals say they lack confidence in their data.

Over one-quarter (29 percent) of banks have yet to implement KYC utilities across the customer lifecycle. New KYC onboarding and reporting guidelines are designed to limit client risk in the form of money laundering, terrorism financing, tax evasion and more.

Costs of implementation can be high, but some FIs see compliance as an opportunity to enhance their competitive advantage. Consumer protection can build trust.

Nearly three-fourths (71 percent) of trade providers cite compliance limitations and inadequate KYC practices as key factors driving trade finance rejection rates.

What Are the Struggles?

A 2017 study by FI Asian Development Bank found KYC regulations are the greatest barrier faced by 77 percent of banks when conducting supply chain finance (SCF) operations, and most business-to-business (B2B) suppliers report related delays as the primary obstacle to onboarding SCF solutions.

FinTechs might provide the solution. The study also found that it takes longer to onboard a client with KYC due diligence when using a bank solution than with a FinTech.

Nearly all FIs (99 percent) believe that underinvesting in technology directly affects client onboarding and retention, yet 33 percent have not made any technological investments to improve their customers’ onboarding experiences.

Bank executives in North America were less likely to bypass investments (20 percent) than their counterparts elsewhere in the world. Nearly half (45 percent) in Europe and 34 percent in the Asia-Pacific region did not place a priority on tech investments to improve the customer onboarding experience.

But there is a global awareness. In March, it was reported that the European Commission planned to make a new list of countries that present a money-laundering risk by the summer, as it increases its efforts to combat financial crimes.

Less applicable to traditional FIs, but still notable as cryptocurrency becomes more mainstream, 69 percent of crypto exchanges lack “complete and transparent” KYC and customer due diligence processes. Just one-quarter (26 percent) have engaged in AML-related initiatives.

Regulatory changes also pose challenges. Those seeking to improve their standards and keep up with various international regulations often find themselves turning to new partnerships and solutions.

For example, cryptocurrency exchange Binance recently partnered with blockchain monitoring solutions provider Elliptic to boost its regulatory compliance as part of its international expansion.

The use of biometrics is controversial, especially in the U.S., but facial and fingerprint recognition can play a role in the AML battle. Other countries, such as Papua New Guinea, are exploring fingerprint-based KYC solutions, and India is experimenting with video-based KYC.

Banks will also need to partner with merchants, payment providers and other industry players around the globe if they want to properly authenticate international users.


Exclusive PYMNTS Study: 

The Future Of Unattended Retail Report: Vending As The New Contextual Commerce, a PYMNTS and USA Technologies collaboration, details the findings from a survey of 2,325 U.S. consumers about their experiences with shopping via unattended retail channels and their interest in using them going forward.