December 18, 2019

It’s the end of yet another year full of fails in Financial and Economic Crime Compliance around the world. To name just one example, WestPac was in the news for 23 million transactions that were overlooked, but there are many others. So the question comes to mind: if even a reputable bank, with experienced management, with a mature compliance program and solid investments in automated systems cannot get it right, how about smaller players? How about all these financial institutions, money service providers, fund managers, accountants and real estate agents? How do they keep abreast of all regulations in the field of AML/CFT and how do they ensure compliance on a day-to-day basis? And would it be safe to assume that in 2020 we can expect the same type of failures as in previous years or can we expect serious improvements?

We know that it is not rocket science but plain hard work to do the right thing across an entire organization. Like i-KYC, many others that have made FEC their area of expertise, know what it takes to get an organization, big or small, compliant at an operational level. Remember: compliance is nothing more than doing what you say you will do; living up to your promises. It shouldn’t be that hard but it implies that every individual in an organisation does his or her bit. And it looks like – although the tone at the top is more and more often right – institutions still have many pockets and corners where individuals don’t take compliance that serious. So how do you get the will to do the right thing and the honesty to just live up to promises across to an entire organisation, across functions, countries, cultures and business lines?

Even small organisations should be able to understand regulations, should be able to find automated systems to monitor transactions and store information on their clients. There are no excuses any more but the fact remains that all staff need to do their part, so maybe it is all about execution and how staff see and undergo compliance.

Regulators have used fines as (the?) major instrument, to ensure institutions take FEC regulations seriously. At the same time though it is common knowledge that – in raising kids or managing a company – coaching and positive encouragement work better than punishment. Non-compliance has a price – the fines that are handed out clearly demonstrate that – but fear is not enough of a motivator for financial institutions to live up to their own promises.

So maybe it is a suggestion to start focusing on the upsides of complying instead of building organisations around fear of doing something wrong.

First and foremost, doing the right thing is worth something and can appeal to staff and customers alike. Remember: dirty money is really ‘dirty’ and usually originates from activities that no well-thinking person wants to have anything to do with. Just like green energy, sustainable farming and driving an electric car can appeal to people, financial institutions that actively prevent money laundering and terrorism financing could make a point of that image attracting customers and staff.

Secondly, doing the right thing is good for a company’s valuation as this article clearly points out Fines damage reputations and negatively affect profitability but most institutions still think fines are only handed out to others. Financial markets will sooner or later understand that being operationally compliant is the benchmark.

Finally, doing business costs money. Doing business while complying with regulations and policies doesn’t have to be costly. Implementing a compliance framework in a better way than the competition  can make a difference in profitability and customer experience.