Global Anti-Money Laundering Survey 2014

Global Anti-Money Laundering Survey 2014

KPMG INTERNATIONAL

2 © 2014 KPMG xxx xxx xxx xxx

Introduction

The overarching aim of this year’s Global AML survey includes:

• Identifying emerging trends, opportunities and threats

• Capturing industry perceptions on regulation, cost, and effectiveness

• Benchmarking AML efforts in the Financial Services industry


Methodology & Respondent Profile

317 respondents in 48 countries from a wide range of AML-related professional backgrounds across the Financial Services industry participated in this year’s survey.

The survey was distributed to AML and compliance professionals in the top 1,000 global banks as well as to KPMG’s AML contacts in over 40 countries.





Job title:



Geographical area of responsibility:



Type of business:


Key Findings

Senior management focus is on the rise again Cost of compliance continues to be underestimated Training and recruitment initiatives need a globally consistent approach Outsourcing and off-shoring are growing trends, despite senior management concerns Transaction monitoring costs continue to soar as satisfaction declines Know Your Customer continues to be the focus of regulators Politically Exposed Persons (PEPs) continue to leave organizations exposed Sanctions compliance shows sign of improvement, but still a sore spot Regulatory approach is fragmented and inconsistent


Detailed Survey Findings

Senior management focus is on the rise again

• Senior management interest in AML compliance has increased again since the decline during the financial crisis, with money laundering risks given regular and formal attention at Board meetings.

• Regulators have done their part in raising the profile of AML with no shortage of fines being issued for failures to maintain adequate AML controls and, placing pressure on senior management to prevent further failings.



AML issues are moving back up the agenda for senior management with 88 percent of respondents saying AML is a priority for senior management.



How challenging respondents consider implementing a globally consistent AML framework, with 1 representing least challenging and 5 as most challenging



Cost of compliance continues to be underestimated

• Costs continue to rise at an average rate of 53 percent for banking institutions, meeting and exceeding predictions of over 40 percent in 2011.

• Accurate cost forecasting is vital for members of senior management to make informed decisions, but it remains a key area of weakness.

• 78 percent of respondents reported increases in their total investment in AML activity, with 74 percent also predicting further increases in AML investment over the next three years.



How much has total investment in AML activity has increased compared to three years ago?



Anticipated increase in AML investment over the next three years.



Areas of AML budget investment



Training and recruitment initiatives need globally consistent approach • Effective training is vital for developing and

retaining AML professionals as well as ensuring the successful implementation of an AML framework.

• A global approach has been adopted in the majority of cases, but there is room for improvement.

• Only 32 percent of the 95 percent of respondents who have a global policy are able to maintain global consistency across subsidiaries and branches.

• Only 62 percent of respondents indicated that the Board of Directors receives AML training.

• 86 percent indicated that front office staff receive AML training, reinforcing that the greatest exposure to money laundering rests with the front office.



Outsourcing and off-shoring are growing trends, despite senior management concerns

• 31 percent of respondents have outsourced some of their AML functions and 46 percent have off-shored parts of their AML function.

• Only 62 percent of respondents indicated that the Board of Directors receives AML training.

• Respondents indicated that loss of control or oversight is the principal reason for rejecting outsourcing of AML functions.

• The top 3 reasons for not outsourcing/off-shoring AML functions are:

1. Loss of control of oversight 2. Data confidentiality concerns 3. Lack of cost savings



Please rank each area in terms of how challenging the implementation of a risk based approach is to CDD collection



Transaction monitoring costs continue to soar as satisfaction declines

• Despite increased investment in transaction monitoring systems, satisfaction has declined with respondents ranking satisfaction an average of 3.42 out of 5, compared to 3.6 in 2011.

• Although transaction monitoring systems continue to represent the greatest area of AML spending, it appears that regulatory requirements are still outpacing system improvements.

• 60 percent of respondents reported transaction monitoring as the largest investment in anti-money laundering controls



Know Your Customer continues to be the focus of regulators

• KYC continues to be an area of concern with 70 percent of respondents stating that they had been subject to a regulatory visit focusing on this area.

• Regulatory visits continue to focus on KYC, directly affecting investment decisions as respondents ranked KYC the second largest AML investment.

• 68 percent of respondents stated that full identification is obtained for intermediate owners and entities.

• The top three concerns regarding KYC technology:

1. Lack of data consistency (57%) 2. Sizeable costs of installation and upkeep

(46%) 3. False alerts (41%)



Politically Exposed Persons (PEPs) continue to leave organizations exposed

• PEPs remain an area of focus, gaining increased attention from senior management, with 82% of respondents stating that senior management is involved in the sign off process.

• 80% of respondents stated that PEP customers are required to provide documents to evidence their source of wealth and/or income. 77% stated that this is required for all high risk clients.

• 65% of respondents stated that their organization currently captures and distinguishes between domestic and foreign PEPs.

• The top 3 methods of identifying PEPs:

1. Commercial lists (70%) 2. Information provided by customer (68%) 3. Information in news searches (60%)



Risk categories where organizations require customers to provide documents to evidence their source of wealth and/or source of income.



Sanctions compliance shows signs of improvement, but still a sore spot

• While there has been a noticeable compliance push to meet the sanctions requirements, there is still room for improvement, particularly when it comes to validating screening systems and rejecting funds.

• Sanctions compliance remains difficult as respondents rank customer screening the most difficult challenge.

• More than 70 percent of respondents find sanction screening systems effective in their organization, however, only 42 percent test their screening systems for effectiveness at the implementation stage.

• Almost 75 percent of respondents reported using the MT202COV SWIFT message for cross border wire transfers, a significant increase from 50% in 2011.



Regulatory approach is fragmented and inconsistent

• Regulatory approach was ranked as the top AML concern, with 84 percent of respondents stating pace and impact of regulatory changes as significant challenges to their operations.

• 63 percent of respondents said that regulators should provide additional guidance and 43% indicated that a stronger relationship with regulators would be a welcomed changed in approach.

• 65 percent of respondents stated that regulatory visits are AML personnel’s primary concern and 80 percent stated reaction to regulator demands is a primary reason for investment in a particular area of AML.


New Focus Areas

Based on discussions with clients, we explore some of the key areas affected by emerging changes in AML regulations

• Trade finance should make better use of AML resources

• Nearly 30 percent of respondents stated that tailored training on AML risks is not provided to their trade processing teams.

• Tax evasion and FATCA compliance remain taxing

• Only 46 percent of respondents expect their organization to be FATCA compliant by the IRS deadline of July 2014.

• The top three risk factors considered when determining tax evasion are: 1. Presence of complex structures (62%), 2. Where the customer is a corporate, the country of domicile of the beneficial owners (60%), 3. Negative news relating to tax evasion (59%)


New Focus Areas


• Asset management sector results reflect changing attitudes with money laundering risk coming into sharper focus in the sector as senior management engagement and investment levels rise.

• 73 percent of asset management respondents reported that money laundering was considered a high risk area within their organization’s business risk assessment.

• 86 percent of respondents reported that investment in AML activity had increased. Investment in AML across the asset management sector is growing rapidly.

• Only 28 percent of asset management respondents regularly tune the thresholds incorporated into transaction monitoring systems.


Conclusion


• Insurance sector aligns well to overall findings

• 62 percent of respondents from the insurance sector confirmed that money laundering is considered a high risk area in their business risk assessments.

• 96 percent of insurance respondents said that their compliance procedures referenced CTF which was similar to other sectors such as retail banking (97%) and to asset management (100%).

• 81 percent of insurers said that their Board of Directors took an active interest in AML issues.


New Focus Areas

3 recommendations for Boards:

1. Nominate a member of the Board with responsibility for

maintaining effective AML controls.

2. Ensure a broad-ranging assurance program is in place which tests systems, processes and procedures.

3. Keep an open mind to efficiency options such as off-shoring and automation. With appropriate oversight, they can be very effective.


Contacts

Brian Dilley T: +44 (0) 20 7896 4843 E: [email protected]

Global Head of KPMG’s AML Services

Regional AML leaders

Europe, Middle East and Africa Enric Olcina T: +34 93 253 2985 E: [email protected]

Americas Teresa Pesce T: +1 212 872 6272 E: [email protected]

Asia Pacific Kyran McCarthy T: +85221402286 E: [email protected]

mailto:[email protected]�




© 2014 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International Cooperative ("KPMG International"). The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

kpmg.com/socialmedia

http://kpmg.com/socialmedia�

http://twitter.com/kpmg�

http://www.linkedin.com/company/kpmg�

https://plus.google.com/u/0/114185589187778587509/posts�

http://www.facebook.com/kpmg�

Education

Global Anti-Money Laundering Survey 2014