Simon Luke, UK Country Manager, First AML
In a recent survey, we discovered that the majority (57%) of financial services professionals are only ‘somewhat confident’ in their anti-money laundering procedures. This is a worrying prospect when over half of the same respondents have identified an instance of money laundering in the past year.
The knock-on effect of failing to adhere to Customer Due Diligence (CDD) and money laundering standards is serious – financial professionals are faced with the risk of extortionate fines and reputational damage, as well as ethical consequences too, especially in light of the existing challenges with Russia.
As an obvious vessel to clean ‘dirty money’, all financial institutions, from large banks to small credit unions, need to be on the lookout for money launderers. As such, financial services need to make anti-money laundering and AML solutions a business priority.
The increasing importance of a company’s ESG stance
According to an industry report, the first half of this year saw firms being punished for breaching ESG standards. This is a topic with two sides of the same coin.
On the one hand, when asked to rank their business priorities, a moderate portion of respondents to a First AML survey put maximising returns for investors first ahead of ESG/doing the right thing, and ahead of improving their bottom line or protecting margins.
On the other hand, when asked for the key reasons that money laundering is rising up their company agenda, 62% said it was due to increased focus on customer transparency and ethical customer onboarding, only slightly below external risks as the main reason.
This majority focus on ethical transparency including ESG demonstrates that the growth of unethical business practices was the key reason that financial services professionals care about AML compliance (32%).
AML compliance costs CAN fit in your budgets
With the looming recession, we know that budgets are tight for everyone at the moment, but AML compliance shouldn’t be the area to be cut. According to Lexis Nexis’ report on the true cost of financial crime, the total projected cost of financial crime compliance in the U.S. and Canada was reported to be USD49.9B last year. This is up by 19% from the previous year and a staggering 58% from 2019.
Reuters’ Cost of Compliance Report 2022 depicts a similar gloomy outlook, with its respondents expecting staff numbers to stay low as staff costs are increasing and budgets remain tight. However, the report has a silver lining saying “outsourcing, new technology, and regulatory technology may step in to plug some of the gaps, but all these resources will need to become more sophisticated to make the type of changes required by compliance functions”.
Outsourcing your AML compliance needs can be the right response to this as it provides the right number of skilled resources, helping maintain staff costs down while giving access to the best-in-class compliance technology.
The bottom line
There is no doubt compliance obligations will continue to increase. In fact keeping up with regulatory updates is the biggest compliance challenge according to Reuters’s report above.
A new approach is therefore needed. Although compliance is consuming more management time, company resources and impacting the bottom line, it can also present an opportunity to businesses. If all competitors need to undertake the same activities to meet their compliance requirements, doing those activities in an industry-leading manner (what is being termed ‘competitive compliance’) can lead to significant upside for the winners.