AML compliance penalties are often very large. Some penalties can cost a financial service firm around half a billion USD. Although penalties that enormous are not the average, it is fairly common for penalties to reach the eight to nine-figure range.
Even if the financial services firm has not detected or been involved in any sort of money laundering activities, these penalties should still be within its radar as many are based on the adequacy of the controls within the firm’s network to detect suspicious activities. A bank can still be slapped with an enormous fine even if no money laundering has happened. Although most of the attention within AML compliance has been on transaction monitoring, the greatest risk exposure is the regulatory enforcement and penalties centered around the governance and risk management processes of AML.
The financial services industry faces an enormous challenge in combating the use of its systems for money laundering activities. Regulatory and governing bodies have implemented a vast bevy of different regulations to assist in preventing and/or detecting such nefarious activities. Remaining compliant with these regulations requires the financial service firm to build an integrated risk and compliance on a technology architecture that is built and equipped with all the required capabilities and tools.
Money laundering has to be an utmost priority for financial service firms, as regulatory bodies have increasingly been enacting penalties on firms for failing to implement and/or maintain adequate controls within AML. It is of paramount importance for the financial service firm to implement a framework and architecture that can adequately support compliance throughout the entirety of the organization.
To remain compliant, organizations within the financial service industry must implement the proper policies throughout the organization and train its employees on those policies to ensure they understand AML processes. AML processes need to be clearly defined, mapped, and integrated into the business processes of the organization. The organization also must ensure that it fully understands and is well trained enough to handle the complicated, multi-jurisdictional element of AML.
The first step in managing any potential risk is identifying that potential risk. Financial service firms need complete visibility into emerging risks related to AML throughout the organization and assess their potential impact on the business. Once that framework is in place, it is easier for the organization to take the necessary steps to mitigate that risk and report to all of the relevant stakeholders.
It is not enough to implement controls and policies. Those policies and controls need to be consistently and constantly monitored, audited, and revised to ensure its continued effectiveness and assure its overall quality over time to the organization. This gives internal audit departments within financial service firms the important position of making sure that the “gears in the machine” are still well oiled and working properly.
One of the prime drivers in detecting and preventing money laundering activities is AML analytics. Customer risk data, KYC (know your customer) and EDD (enhanced due diligence), data validation, data trends, and external data have all given financial firms an edge in combating money laundering activities. It is essential for organizations to fully leverage this data and tactics in remaining compliant with regulatory bodies.
Financial service firms need a strong and vigorous AML reporting system to meet regulatory mandates on internal reporting and controls in AML. The organization must implement a technology framework that gives them advanced reporting capabilities so the organization can meet regulatory and tax compliance reporting requirements, suspicious activity reporting (SAR), line of business reporting, board reporting, etc.
Advancements in machine learning, data validation, pattern detection, and transaction detection have all given the organization the necessary tools to detect and prevent money laundering activities within their system. These tactics dominate most of the attention in AML compliant management throughout the financial services industry.
Organizations usually are not fined as a result of a suspicious transaction that went through unchecked or unverified, but rather because the organization didn’t have the controls in place to detect and prevent the transaction.
Integrated Risk Management assists in introducing and implementing the controls to help organizations improve their AML compliance systems and avoid penalties. It provides training programs that educate employees on AML and AML processes in the organization. IRM also provides regulatory bodies with a complete and transparent audit trail for AML processes and controls. All of this culminates in a significantly reduced likelihood of being levied an enormous fine.