Why Regulators are still finding ‘gaps’ in Banks internal AML controls


The magnitude and global nature of the UK financial industry means that both money laundering and the criminal activity that creates it, generates the need for strong anti-money laundering and KYC policies. More than ever anti-money laundering measures remains one of the Financial Conducts Authority’s (FCA) top priorities- but why is this? The purpose of regulation imposed by the FCA is to create an environment whereby criminals do not have the ability to launder money through the financial system (thereby protecting our banks and helping them safeguard its customers). Recent measures taken by regulators, such as the UK FCA and Germany’s BaFin show that anti-money laundering (AML) /Know Your Customer (KYC) processes are still not up to ‘scratch’, with Deutsche Bank and Danske Bank being identified as having deficiencies in their AML controls. 

Despite banks best efforts to adhere to the ever-changing regulation, EU regulators continue to question their controls and processes. Economic sanctions continue to dominate headlines around the world, both in respect to growing regulation and regulatory enforcement. As a result, AML compliance is a growing concern for international banks and financial institutions.


So why are regulators still finding ‘gaps’ in banks internal controls?


- Lack of Communication: many firms wait until they are faced with regulatory enforcement actions before amending their AML policies and training programs;
- That means employees are not knowledgeable of regulatory requirements or policy updates; let alone any of the implications of not adhering to requirements as defined by the regulator;
- Inadequate MI: it is not uncommon that management information does not provide senior personnel with a holistic view of key issues within the group or where such issues are arising from. The resulting impact is that senior members of staff are not making adequate or quick enough decisions when faced with regulatory pressure;
- Insufficient Technology: fragmented internal systems and platforms limit banks’ ability to accurately automate transaction monitoring. More often than not short-term views are taken with respect to implementation costs; new systems cost a lot of money up front but may save hundreds of thousands in the long run (which is not necessarily taken into consideration). Therefore, it is not uncommon practice that banks tend to ‘update’ their current systems rather than innovate and create more effective technology; and
- Data Monitoring: the quality and integrity of data should be focused on data sourcing analysis and quality analysis. Banks need to start assessing completeness, conformity and accuracy of data that is collated. KYC and transaction monitoring should be integrated to capture the appropriate information up front and should be encompassed in a transaction monitoring data feed that is updated continuously.

How can lysis help?


For many institutions, there are several challenges to creating a sustainable AML organization. Here at Lysis we can review the coverage and capabilities of a firm’s AML regime and recommend improvements. This AML Health Check and Maturity Assessment is a review of the internal governance, policies and operational framework that is in place as well as sample-checking the output of AML operations to ascertain if the quality of files meets internal policy, regulatory requirements and industry best practice


For further information please contact info@lysisfinancial.com