Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 

Supervising anti-money laundering compliance laws

Governments should be thinking smarter when supervising anti-money laundering compliance laws



“Governments need to embrace the benefits of AML supervisory technology (AML SupTech) when developing models for anti-money laundering supervision.”

Under anti-money laundering compliance laws, governments across the globe supervise their financial services industries to ensure businesses uphold laws designed to obligate the identification and reporting of their clients’ suspicious transactions. Such businesses include banks, brokers, lenders, FX traders, real estate agents, lawyers accountants and more. The suspicious ‘activity’ may involve a client’s verbal instruction to buy or sell assets or a financial transaction of another type.

These laws are commonly referred to as anti-money laundering and countering financing of terrorism or AML/CFT for short.

Government divisions with oversight of AML/CFT laws are referred to as AML Supervisors. AML Supervisors are responsible for carrying out AML Supervision across the financial services sectors.

The objective of AML Supervision is to ensure businesses are complying by having systems in place with capability to identify and report suspicious activity undertaken by their clients.

In some countries, such as Australia, it seems in recent times the AML Supervisor, AUSTRAC, is succeeding in prosecutions against banks. Australia’s prosecutions for AML compliance breaches have included the Commonwealth Bank; Westpac is currently in court and now it looks like HSBC is also in hot water with AUSTRAC. Australia is however yet to introduce the activities of professional services into their principles based, AML/CFT laws. These services are considered a high risk to unwittingly facilitating ML/FT and are commonly known as transactions undertaken by ‘gatekeepers’.

Gatekeepers include lawyers, accountants and real estate agents. The ‘gatekeeper’ term refers to the ability for financial criminals to access accounts and services through representation of a third party professional. Organised and sophisticated criminals prefer this gatekeeper approach as they get to avoid direct contact with the financial institution to whom the gatekeeper is engaging with. By avoiding the need to respond to letters, emails and face-to-face interaction, criminals gain benefits by accessing services and products they might not otherwise have been able to. This opaque trail assists organised crime groups to work under the radar and have greater chance of avoiding detection. The financial institutions to whom the gatekeepers are dealing with, may be oblivious to whom the transaction represents.

When Australia’s parliament finally closes that loophole, with over 100,000 entities to monitor, Australia’s AML supervisory framework is likely to move from a labour intensive model to a technology based model.

Human Resourcing versus Technology

“… the intensive manual, hands-on supervision model that most governments operate with is inadequate for achieving effective supervision.”

AML supervision will always require an element of human resourcing but the intensive manual, hands-on supervision model that most governments operate with is inadequate for achieving effective supervision.

Where the financial services sector has raced forward with sophisticated technological systems, governments seem to be slower off the mark.

Now that the world is twenty years post the dot com era, governments and businesses should have identified that effective technology can provide a level of efficiency that is impossible to match with a chain of human beings.

Though there will always be a need for the human resourcing element with AML Supervision, the allocation and balancing of resourcing needs to be smarter.

Using Technology to Measure Risk

“Because an effective AML Supervision model includes a web of quality data, technology will always be needed.”

An automated risk model will instantly calculate risk at country level, across financial industry sectors, through to individual business entities. If an AML supervisory model cannot automate this risk identification process, it has already hit a wall of deficiency.

Country and Sector Risk Analysis

“National and sector risk reporting should be completed on at least an annual basis.”

Under international standards set by the Financial Action Task Force, governments are responsible for carrying out risk analysis across a country and the financial industry, sector by sector. These reports are referred to as national and sector risk assessments.

These assessments allow governments and businesses to better understand their risks and in turn, develop risk mitigation strategies.

National and sector risk assessments are vitally important for businesses establishing trading relationships.

Unfortunately most countries have at least a 2-3 year gap between their national risk assessments. Identifying any new risks 2-3 years after their emergence, results in businesses and government missing opportunities to identify suspicious activity sooner.

With the benefits of SupTech, data systems are set to automate national and sector risk data. AML Supervisors will know the real risks on an ongoing basis and will be able to inform businesses of any new or emerging risks instantly, if desired.

Identifying Risks at Business Entity Level

“If AML Supervisors are unable to identify their higher risk entities, they are unlikely to achieve their regulatory objectives.”

In order to achieve the outcomes of effective supervision, AML Supervisors need to identify their higher risk entities. These higher risk entities are not always the large size corporations. A high risk entity may be a small business operating as a public payment system and transacting 100% of business with a high risk country. The ‘small’ business, based on human resourcing of 2-3 staff, may be transacting values that are hundreds of millions of dollars per annum. To aggravate the risk status, the country the business is transacting with might be high risk due to corruption levels, tax evasion or a sponsor of state terrorism. Potentially the trading country of the small domestic business could have red flags in each of those categories. If AML Supervisors are unable to identify their higher risk entities, they are unlikely to achieve their regulatory objectives.

AML SupTech instantly identifies higher risk areas at national and sector level, through to business entity level.

Once government is measuring risks based on quality data, decision makers are better informed. This allows AML Supervisors to act swiftly and if necessary, apply remediation.

Developing AML SupTech

“SupTech enables AML supervisors to automatically identify real risks and continually measure whether regulatory objectives are being achieved.”

Developing a configuration for AML SupTech requires mapping quality data and measuring primary KRIs. When the switch is turned on, quality data will flow into measurement containers which in turn automatically report on risks.

Ongoing monitoring and reporting is taken care of with automated work flows, freeing up AML Supervisors to deal with breaches, remediation and enforcement action. The earlier wall of deficiency has disappeared and so too has the AML Supervision model that was heavily reliant on manual resourcing.

Here is a sample of what an AML SupTech model may look like. A Suptech model will simultaneously collate data, analyse, measure and report.

“AML360 provides government with deep insight of AML/CFT risks across their financial industry and professional services.”

For countries with smaller budgets, AML360 can provide a plug-and-go solution, configured and already tested to ensure it meets requirements at the country’s national and international standards.

AML360’s plug-and-go solutions can be used for carrying out national and sector risk analysis, as well as risk profiling at business entity level.

Governments also have the option to use the DIY configuration tool to design their tailored framework.

“In line with the FATF Standards, the FATF encourages the use of technology, including Fintech, Regtech and Suptech to the fullest extent possible.”- The FATF President, 1 April 2020



The Changing Face of AML/CFT Supervision

“Because most governments are not yet utilising AML SupTech, AML Supervision has not yet reached its full potential.”

More countries are moving away from rules based AML/CFT laws and introducing laws developed on principles and objectives. This is known as principles based legislation or the risk based approach to meeting regulatory outcomes.

This principles or risk-based approach to AML laws recognises smaller, lower risk businesses are not expected to have the same type of sophisticated compliance systems as higher risk entities.

This change of AML legislation has required governments to operate with systems capable of determining their higher risk and vulnerable entities that operate within their financial industry.

For AML Supervisors who monitor tens of thousands or hundreds of thousands of businesses, they can only achieve this level of effective risk analysis through use of technology.

When governments and businesses do implement effective technology, we can expect to see another changing face to AML supervision and its outcomes.

* About the author

Kerry Grass

Kerry has worked in AML regulated roles for government in three countries and formerly held AML management roles within banks. Setting up Anti-Money Laundering Consultants Limited in 2010, the company later teamed up with AML professionals and software engineers to develop AML compliance technology. Known as AML360, the software delivers compliance management platforms to both businesses and government.

Collaborating with government

For governments who are either developing or wishing to implement an AML SupTech framework, get in touch with AML360 (suptech@aml360.com). We will share our knowledge and expertise to help you create the best system the first time round.


© Scoop Media

 
 
 
Business Headlines | Sci-Tech Headlines

 

Science Media Centre: Funding For R&D In New Zealand – Expert Reaction

Research, Science and Innovation Minister Dr Megan Woods has today announced $401.3 million funding for research and development through Budget 2020 and the COVID Response and Recovery Fund. The fund includes $150 million for an R&D loan scheme, ... More>>

ALSO:

Maritime NZ: NZ Joins Global Initiative Keeping Ports Open And Freight Moving

New Zealand has joined an international port authorities’ global initiative for safe and efficient movement of goods and shipping during the COVID-19 crisis. World-wide, 56 port authorities have agreed how they will work together facilitating maritime ... More>>

ALSO:

National: National Backs Businesses With $10k JobStart

National will provide a $10,000 cash payment to businesses that hire additional staff as part of our commitment to keeping New Zealanders in jobs, National Party Leader Todd Muller and Finance spokesperson Paul Goldsmith have announced. Our JobStart ... More>>

ALSO:

DIY Law: Government Exempts Some Home Improvements From Costly Consents

Homeowners, builders and DIYers will soon have an easier time making basic home improvements as the Government scraps the need for consents for low-risk building work such as sleep-outs, sheds and carports – allowing the construction sector ... More>>

ALSO:

Media Awards: The New Zealand Herald Named Newspaper Of The Year, Website Of The Year At Voyager Media Awards

The New Zealand Herald has been labelled a “powerhouse news operation” as it claims the two biggest prizes – Newspaper of the Year and Website of the Year – along with many individual awards at the 2020 Voyager Media Awards Website of the ... More>>

ALSO:

ASB Bank: ASB Takes The Lead Again With New Low Home Loan Interest Rate

ASB has moved again to support its customers, cutting a number of home loan rates, including the two-year special rate to a new low of 2.69% p.a. Craig Sims, ASB executive general manager Retail Banking says the reduced rate will be welcome news for many ... More>>

ALSO:

Nathan Hoturoa Gray: The Problems With Testing And Case Statistics For Covid-19

To begin to understand disease transmission in a country requires adequate testing of your population with properly vetted, accurate tests. As the world struggles to find what 'adequate percentage' of the population is necessary, (estimates predict ... More>>

ALSO:

RNZ: Fletcher Building To Lay Off 1000 Staff In New Zealand

The construction company will cut around 10 percent of its workforce as it struggles with the fallout from Covid-19. More>>

ALSO:

Can Pay, Won't Pay: Cashflow Moves Urged

Government Ministers are asking significant private enterprises to adopt prompt payment practices in line with the state sector, as a way to improve cashflow for small businesses. More>>

ALSO:

Gordon Campbell: On Why We Should Legally Protect The Right To Work From Home

For understandable reasons, the media messaging around Level Two has been all about “freedom” and “celebration”, but this is not necessarily going to be a universal experience. When it comes to workplace relations, Level Two is just as likely to ... More>>

ALSO:



New Zealand Government: Supporting Kiwi Businesses To Resolve Rent Disputes

The Government will legislate to ensure businesses that suffered as a result of the COVID-19 response will get help to resolve disputes over commercial rent issues, Justice Minister Andrew Little announced today. More>>

ALSO:


Science Media Centre: Understanding 5G Concerns – Expert Q&A


Recent attacks on cell phone towers have brought concerns over the rollout of 5G technology into sharp relief.
While scientific research has consistently shown that the technology does not adversely affect human health, public concerns about its impact have spread around the world, fueled in part by growing misinformation online. The SMC asked experts to comment... More>>

ALSO:


Trade: Record Monthly Surplus As Imports Dive

Imports in April 2020 had their biggest fall since October 2009, resulting in a monthly trade surplus of $1.3 billion, Stats NZ said today. “This is the largest monthly trade surplus on record and the annual goods trade deficit is the lowest ... More>>

ALSO:


Media Blues: Stuff Chief Executive Buys Company For $1

Stuff chief executive Sinead Boucher has purchased Stuff from its Australian owners Nine Entertainment for $1.
The chief executive was returning the company to New Zealand ownership, with the sale is expected to be completed by 31 May.
"Our plan is to transition the ownership of Stuff to give staff a direct stake in the business as shareholders," Boucher said in a statement.... More>>

ALSO:

RNZ: Bar Reopening Night 'much, Much Quieter'

Pubs and bars are reporting a sluggish first day back after the lockdown, with the fear of going out, or perhaps the joy of staying home, thought to be a reason for the low numbers. More>>

ALSO:

Stats NZ: New Zealand’s Population Passes 5 Million

New Zealand's resident population provisionally reached 5 million in March 2020, Stats NZ said today. More>>

NIWA: Seven Weeks Of Clearing The Air Provides Huge Benefits: Scientist

Seven weeks of lockdown has provided evidence of how pollution can vanish overnight with benefits for the environment and individuals, says NIWA air quality scientist Dr Ian Longley. Dr Longley has been monitoring air quality in Auckland, Wellington ... More>>

ALSO:

Government: Milestone In Cash Flow Support To SMEs

A significant package of tax reforms will be pushed through all stages in Parliament today to throw a cash flow lifeline to small businesses. More>>

ALSO: