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Corporate Counsel Connect collection

August 2014 edition

Ten eye-opening (and some expected) findings regarding AML and compliance for 2014

Paul Godlewski, Thomson Reuters, Fraud and Investigative Solutions

Know Your Customer (KYC), Anti-Money Laundering (AML), Customer Identification Program (CIP), Compliance, Fraud Prevention...these and other similar terms continue to be a hearty focus for regulators and GC's alike.

More pointedly, compliance professionals and senior AML management are feeling the pressure of increased regulation and accompanying oversight. Two recent reports (the Thomson Reuters Accelus Cost of Compliance 2014 and the KPMG Global Anti-Money Laundering Survey 2014) highlight these themes and draw similar conclusions that, if nothing else, should help GCs to understand these concerns as well as emphasize the universal importance of developing and continuously maintaining programs that protect the organization.

One thing to remember is that with increased regulation and oversight comes increased costs of achieving and maintaining compliance. And, whether specifically focusing on a CIP or an AML program, organizations must commit time and resources while instituting programs that demonstrate comprehensiveness and consistency.

By establishing an in-depth, defensible process that covers sufficient timeframes and accesses pertinent data sources across all research techniques, these objectives can be met. For example, considering that approximately two-thirds of the county court systems in the U.S. do not have a significant online presence, the integration of a reliable and broadly scoped manual document retrieval service cannot be ignored while researching adverse filings.

From the looks of things, regulators are showing no signs of pulling back on the reins. In the KPMG AML report, it was found that "seventy percent of respondents...received a regulatory visit which focused on KYC, suggesting KYC is still under the spotlight. Regulatory investigations have frequently drawn attention to significant gaps in the KYC information maintained by financial institutions."

The following are ten surprising and not-so-surprising findings from the two aforementioned survey reports from which all GCs and their Compliance officers can glean very pertinent insights.

1. Senior Management focus is on the rise. Because of this, AML teams need to employ tools and best practices to keep up with organizational reporting needs.

2. Top challenges firms expect to face are Regulatory Requirements and Resources, followed by the pace and volume of Regulatory Change. Staying on top of this evolution requires access to pertinent information in a timely manner.

3. Cost of compliance continues to be underestimated. Which is why organizations need to employ resources that give them more "bang for the buck" and proven ROI.

4. Over a third of firms globally spend at least a whole working day every week tracking and analyzing regulatory change. Because of this time commitment, organizations must understand the need for and harness efficient resources to conduct research on areas of concern.

5. The number of compliance teams spending more than 10 hours a week tracking and analyzing regulatory developments has nearly doubled in both the U.S. (13 percent in 2013 and 25 percent in 2014) and the Middle East (8 percent in 2013 and 18 percent in 2014). With cost reduction pressures and considerations as high as they are, this increased focus would entail more human resources...or finding other savings along the workflow by leveraging electronic solutions.

6. Two-thirds of compliance officers expect to be spending more time liaising and communicating w/regulators over the next 12, significantly so. Again, highlighting an increased human resource time commitment.

7. Globally, compliance functions reported spending very little time liaising with the internal audit function, a persistently repeated finding which is a growing cause of concern. Electronic resources that enable better inter-departmental communication and provide more efficient means for doing so have been flying off shelves. Targeting this area of concern seems like a wise investment.

8. More than half of compliance professionals expect their personal liability to increase in 2014. With news stories about potential fines being levied against Chief Compliance and AML Officers themselves, one can't help but think that FINRA and other related government agencies are not kidding around about compelling financial institutions to invest in these programs.

9. Know Your Customer continues to be a focus of regulators. CIPs and AML programs can't continue to rely just on web searching and personal references in order to save money. More stringent regulations combined with more frequent oversight ultimately requires more attention and resourcing.

10. Regulatory approach is fragmented and inconsistent. This highlights why consistency in research and reporting is imperative to demonstrate at any time.

Reprinted with permission from the Association of Corporate Counsel 2014 All Rights Reserved