Complying with anti-money laundering regulations

//Complying with anti-money laundering regulations
Anti-money Laundering Regulations KYC Know your client FX

Complying with anti-money laundering regulations, a highly complex and expensive task for financial institutions

When I visit partner Banks and Fintechs, a point of extreme interest to me is their management of ‘Compliance’, specifically their Know Your Customer (KYC) and Anti-Money Laundering (AML) protocols.

Compliance, which encompasses several departments including KYC & AML, aims to reduce the risk exposure of Financial Institutions (FIs).

Although the concept of Anti-Money Laundering is not new, it became a focal point for financial regulators as a result of the 2001 terrorist attacks on the World Trade Center. Then in 2008, the subprime mortgage collapse followed by a global debt crisis triggered a wave of regulatory change as governments scrambled to uncover and tax hidden wealth.

When the USA implemented the Foreign Account Tax Compliance Act (FATCA) in 2010, Europe and the UK quickly followed suit thus encompassing the three most-traded currencies. In 2014, 47 countries signed up to the Common Reporting Standards (CRS); to combat tax evasion by forcing Financial Institutions to automatically share data about the final beneficial account holders. Today, over 100 countries are participating, including Brazil.

The Cost of KYC 

The evolving financial regulations and the threat of severe penalties have put more pressure than ever before on FIs; with total fines in excess of $7 billion since 2015 for failure to comply with KYC and AML regulations.

FIs have been strong-armed into increasing investment into their KYC and AML procedures, however, this comes at a cost: The average bank spends just over $50 million a year on KYC & AML, and Governance Risk and Compliance (GRC) spend accounts for 15-20% of operational costs. With over 50,000 regulatory updates published across G20 in 2015 alone, these costs are only expected to increase. While the evolving KYC & AML regulations increase operating costs (The Big FIs spend between $150 million to $400 million annually on KYC-related procedures) arguably this benefits the large banks, as it stifles competition and raises the barriers to entry.

Over the years I have witnessed first-hand how onboarding and Customer Due Diligence (CDD) (part of the KYC procedure) processes have become increasingly time-consuming and complicated for both financial institutions and their clients, with cost implications based on increased staffing requirements, technology infrastructure and opportunity-cost of delayed transactions. With no end-to-end tech solution currently available to scale-up KYC & AML, what it means is that no matter how good the sales team might be, the customer’s first experience with the FI is often negative.

In bringing together years of Banking experience from diverse geographical regions, FFX supports FIs with our KYC and AML outsourcing services: an end-to-end solution aimed at reducing the operational burden associated with onboarding and the reassessment of clients.

Let FFX add value with scalability and agility whilst minimizing the client touch points to improve their onboarding experience.

No comments yet.

Leave a comment

Your email address will not be published.