Banks need to overhaul anti money laundering mechanism

Banks and financial institutions across South Asia need to redesign their processes to deal with cases of money laundering even as they are facing increased challenges in meeting heightened regulatory expectations, consultancy firm Deloitte said in its latest South Asia Anti-Money Laundering Preparedness Survey.

The survey will be released on August 26 and its content have been shared with Business Standard. As per the findings of the survey, while banks have been reactive in dealing with such cases, usually with understaffed teams, they will have to do better to get ahead of the cases and follow a "If you could have known, then you should have known" approach.

The report highlights siloed risk management approaches across banking operations, customer due diligence, sanctions screening, and trade-based transactions as the root cause for systemic inefficiencies leading to fraud.

According to the survey, meeting increased regulatory expectations and enforcing anti-money laundering (AML) compliance pose key operational challenges to banks, even as 81 per cent respondents across India, Sri Lanka and Bangladesh indicated that their AML programme was compliant with all regulatory requirements. These challenges range from reliance on manual processes, inadequate data, and the inability to recruit or retain skilled staff.

"Historically, AML programmes have been incident-driven with lean teams to manage response to events, or changes in regulatory developments. But that is no longer adequate today.

With increased regulatory scrutiny, banks need to move to a proactive approach demonstrate

to their compliance to avoid fines, rather than rely on the traditional reactive approach," said KV Karthik, Partner, Forensic, Financial Advisory, at Deloitte

As per the survey, the respondents highlighted technology-related challenges such as high false positives, data accuracy and unstructured data, limited integration with core banking systems, and incomplete coverage of all products and processes. This lack of technological maturity, and data governance appears to have had a cascading impact on every aspect of the AML programme.