Anti-money laundering not always priority in Asia: poll

[SINGAPORE] Anti-money laundering (AML) measures - despite the rhetoric - among Asian banks including those in Singapore are not always a priority issue, a survey has found.

But Asian regulators are stepping up their game and expect board directors to take an active role in managing AML risks, so banks need to address the issue more urgently.

While AML measures are an increasing priority for senior management across Asia, awareness and take-up still lag behind the global average, said KPMG's Global Anti-Money Laundering Survey 2014.

In its fourth edition, the survey had responses from 317 AML-related professionals in financial services across 48 countries, including Singapore.

The survey found that 88 per cent of all respondents globally indicated that AML is a priority for senior management, up from 62 per cent in 2011. But the Asia-Pacific (Apac) showed an improvement with 80 per cent of respondents, up from just 50 per cent in 2011 - indicating that while boards of directors take an active interest in AML, this is still short of the global average.

On regular discussion of AML issues at the board level, it was 51 per cent for Apac, compared to the global average of 66 per cent.

As for AML training for board members, only 47 per cent of Apac financial institutions have it, 15 percentage points lower than the global average.

Lem Chin Kok, KPMG Singapore partner heading AML and sanction services, noted that regulators in the region are becoming more vocal in their expectations of the role that the board of directors play in the oversight of AML compliance programmes.

"In particular, regulators are asking the board of directors to demonstrate active management of money laundering and terrorist financing risks, to develop a robust risk culture throughout their organisations, and to ensure that their AML compliance programmes are sufficiently resourced," said Mr Lem.

"As a result, we expect that board-level interest in AML will continue to increase," he said.

The Monetary Authority of Singapore (MAS) has also increased its AML efforts.

"I do believe that the MAS has similarly raised its expectations as the paradigm shifts. The designation of tax crimes as money laundering predicate offences last July and the release of the national money laundering and terrorist financing risk assessment report earlier this year are examples," he said.

Regulatory change remains a key driver of AML initiatives, with many regulators introducing and enhancing requirements over the last few years.

Some 82 per cent of Apac respondents indicated that the pace and impact of regulatory change are a top concern.

They said the top three areas that regulators focus on during site visits are customer due diligence (70 per cent), ongoing monitoring (56 per cent), and enterprise-wide AML risk assessments (54 per cent).

A significant number also mentioned politically exposed persons and sanctions compliance as areas of interest for regulators, broadly in line with other parts of the world.

Mr Lem has also observed heightened scepticism among regulators.

"For example, the regulators may no longer be satisfied that a bank has a sanctions surveillance system. The regulators may want to know how the bank ensures that the system is functioning properly, that routines configured are working as intended, and that the system will continue to be effective," he said.

"Similarly, the regulators may no longer be satisfied that a bank only performs checks for adverse news on its clients during periodic reviews. The regulators may question the duration between the checks or the scope of the checks."

Similar to other regions, Apac respondents highlighted a lack of qualified resources as one of their top concerns.

Some 67 per cent of Apac respondents have more than three years of experience in AML, compared to 82 per cent in Western Europe and 85 per cent in North America.

Separately, the report said that United States tax law, the Foreign Account Tax Compliance Act (Fatca), due to be implemented by July 2014, has the potential to become a significant driver of improvements in the KYC or know your customer process. Fatca requires all financial institutions outside the US to provide data on accounts of US nationals to the taxman.

In Apac, over 40 per cent of respondents said incomplete customer due diligence records are the top concern for Fatca compliance, followed by process changes.

Meanwhile, less than 50 per cent of Apac respondents believe they will be Fatca-compliant by July 2014, despite the six-month extension that was granted.

Said Mr Lem: "We believe that regulators in the region will increasingly enter into agreements to exchange information. Hence, financial institutions, including those in Singapore, will likely face greater uncertainties and challenges in the near future.

"Their focus is also likely to broaden beyond the banking sector to include other sectors such as remittance agents, money-changers, internet-based stored value facility holders, corporate service providers, pawnbrokers and gaming operations."