Fines drive data to top of banks’ AML concerns

Data is top bank concern about AML

Market participants are worried about data and are deeply concerned about their ability to monitor transactions following a string of major fines to global financial institutions, according to a new report by NICE Actimize.

In the study, respondents were asked to choose the top three factors that increased their AML risk over the past 12 months. Data availability/quality was the most common answer selected by both North American participants (23%) and EMEA participants (28%) with a global average of 25%. Respondents were also asked to name the one factor that could make the most difference in their efforts to improve AML compliance. Three quarters of the answers fell into two major categories: technology improvements (46%) and data enhancements (23%).

By technology improvements, the banks in the survey meant “strong AML tools”, “improved connectivity” and “integration of systems”. Data was specifically mentioned again as one of the biggest challenges that firms are facing, with respondents highlighting “access to data”, “data clean up” and “data quality”. The complexity of these requirements prompted one survey respondent to claim that “there is no one factor” that can solve the problem. Other improvements requested in the survey include “increased staff” as well as “improvements in customer data availability” and “new practices and services”.

“While it is known that creating a complete and comprehensive AML programme is a very challenging process, requiring the right budget, resources, training, and technology, firms must strive to have the best people, policies, and practices, and capable and effective data and technology for execution of AML compliance regardless of geography or size of the institution,” read the report.

A salutary reminder of the cost of getting it wrong came in August, when Standard Chartered was fined $300 million by the New York State Department over failures in its anti-money laundering processes. The bank was also fined $340 million in 2012 for allegedly breaching US sanctions against Iran.

However, this is just the latest in a long string of failures, all of which can be attributed in one way or another to poor management of operational risk. The spectacular $1.9 billion fine imposed on HSBC in December 2012 for AML failures in Mexico remains the largest single example, but it was far from being an isolated incident. In September 2013 JP Morgan was fined $920 million for the ‘London whale’ trading loss, which had already cost the bank $6.2 billion. Two months later, JPM reached a $13 billion settlement with the US authorities – the largest settlement with a single entity in US history.

In North America, requirements were a little different from EMEA – especially around model risk management, which 9% marked as key priority in 2014, vs 12% in 2013, a 7% increase in that region. According to NICE Actimize, this result may be one indication that there is still significant work ahead related to model governance management and that firms are still engaged in processes to meet model validation per regulatory requirements. In EMEA however, the interest has decreased, with no firms marking model governance as a priority this year.

Other focus areas in North America include “replacing outdated end-of-life technology” (21%) and “improving AML coverage” (16%). According to the report, those priorities perhaps go hand in hand, where the process of technology replacement can be an opportunity to review the existing risk AML policies in the firm, update the business requirements, and identify opportunities to improve detection analytics and risk assessment processes.

The study was based on interviews in New York, San Francisco, London, and Johannesburg with representatives of the top 10 global financial institutions, as well as regional bank representatives.