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FCA: UK Banks Are Failing in Their AML Approach

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UK banks are not taking anti-money laundering controls seriously enough, with some still viewing AML protections as unnecessary. This was the concern raised by Financial Conduct Authority (FCA) director of enforcement and market oversight Mark Steward, speaking to reporters at the FCA annual public meeting last week – and the regulator is ready to crack down.

“What surprises me still is that there is a view in some quarters that anti-money laundering systems and controls is a lot of money for nothing in return, and it’s a huge bureaucratic exercise in red tape, rather than something which is really important,” said Steward. “What that tells me is the point of AML controls somehow got lost and got missing from the challenge – an understanding that this is all about reducing predicate crime of a very serious nature.”

The criticism comes hard on the heels of the embarrassing FinCEN scandal, where thousands of leaked US government files suggest trillions of dollars-worth of suspicious and potentially criminal funds may have been moved by banks including JP Morgan, HSBC, Standard Chartered, Deutsche Bank, and BNY Mellon between 1999 and 2017, unchecked by law enforcement agencies. More than 3,000 UK companies are named in the FinCEN files, thus designating the UK a “higher risk jurisdiction.”

No surprise, then, that the FCA director of market oversight is so concerned. But what needs to change – and how can that be enforced?

“The FCA is right when it says more needs to be done by the banks to combat money laundering and financial fraud. Although this has to go hand-in-hand with more prosecutions and stiffer penalties for those involved in this multi-billion pound industry,” says John Dobson, CEO at AML experts SmartSearch. “The fact is that banks need to work smarter and embrace the technology that is now available to every business on the high street. They must accept that gone are the days when it was good enough for a customer to walk into a branch and present themselves and a document as proof of ID.”

Aside from the fact that nationwide branch closures make it more difficult for customers, the chances of a bank cashier identifying a fraudulent document is very low. As a result, the traditional checks have become little more than a tick box exercise. As a result, many banks have resorted to employing armies of back room staff performing manual tasks to process regulatory checks, which is both laborious and expensive.

And, one could argue, unnecessary. Today, the technology solutions already exist to fully and cost effectively automate both individual and business KYC-AML compliance checks, with many systems costing less than £1,000 per year – affordable for almost every business.

It looks as if those who have not yet got on board with automated KYC onboarding and compliance will need to pull their socks up – with Steward warning that this issue is of the utmost importance to the FCA.

“There’s a reason why we are working with so many other law enforcement agencies on tackling this issue, it’s because there’s so much of it, it really does need to be taken very seriously,” he said. “I’m not yet sure there is a strong enough unanimous view that this is really serious.”

There are obvious challenges, of course. Increasing cost, complexity and regulatory change continue to inhibit firms implementing client onboarding and KYC systems, while the data management issues can be complex. But with an effective strategy and a clearly defined pathway, it’s possible to gain a valuable competitive advantage whilst meeting those all-important compliance requirements. To learn more about how you can achieve this, don’t miss our upcoming webinar on ‘How to run effective client onboarding and KYC processes’ – sign up for complimentary access here.

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