The danger is that excessive regulation creates an environment where financial institutions become too focused on complying with the laws of the land and managing the systems and controls to do so, to the detriment of spending more time considering how to fight financial crime more effectively.
Financial crime compliance leaders need to balance the need to comply with regulation, with the very real need to build sustainable and effective systems and controls and future-proof them. Many lack the bandwidth to do both at the same time. Thinking of new and better ways to combat financial crime is exciting, but breaking protocol and encouraging change demands a lot of effort and respondents report a fear of ‘dropping something inadvertently’ with regards to regulation, and having to face the consequences. This acts as a deterrent to innovation.
“Every firm is investing in compliance. We’ve come to a point, now, where that’s unsustainable in the longer term. For us to be able to move to where we need to … there needs to be a bit of give and take. There can’t be more regulation layered on top of existing regulation. If there is going to be a step change in capability, there needs to be a different outlook in terms of the regulation.”
– Financial Crime Intelligence Director, leading UK Bank
Growth in the volume of AML activity is perceived to be the most important internal driver of total AML costs. – Fig 2.
A senior compliance professional at a leading currency exchange provider told us they expect the compliance burden to continue to increase as a result of media coverage around money laundering and COVID-related scams: “Whenever a scam hits and wherever it’s extensively covered in the media, there’s an inevitable reaction from legislators, which unfortunately, adds burden on the compliance function.”
Steve Payne of Vitality Group also attributes the increase in activity to the fact that financial crime compliance has moved up the boardroom agenda in recent years. He talks of, “a cultural realisation of the importance of compliance”, for the Insurance industry: “In the last two to three years, financial crime has very much gone up the agenda. It’s a general realisation that it’s a major topic and it’s a hot topic with both the regulator and law enforcement.”
Graeme Morrison, Head of Financial Crime at Ardonagh Group agrees: “I would say the volume of compliance activity is increasing, because I think the business now understands the value of it. The business sees compliance as a partner in doing the right thing and in some ways, being a bit of the conscience of the organisation. And it helps management make the right decisions.”
The most important catalyst of increased AML compliance activity over the past three years appears to be associated with business growth - taking on new customers and running customer due diligence checks for them. Investigative and alert-related activities were next most cited, with back-end processes, such as compliance activity reporting, typically the least likely to have increased, versus three years ago.
Fig 2b shows the net balance of respondents reporting increased volumes of AML compliance activity over the past three years, less those who reported a decrease. All activities showed a net positive balance, but there was significant variation across categories.
The global pandemic has created a list of challenges for AML compliance staff, topped by increased criminal activity, with almost 50% of institutions recording spikes in alerts and possible suspicious activity – see Fig 2c. Almost half of respondents (43%) also cited interruptions to their compliance monitoring capabilities, as a major challenge, no doubt in part fuelled by the lockdown-induced shift to home-working and in some cases, the need to furlough staff.
