3. AML policies and procedures by hijuney5


									19 KPMG’s Global Anti–Money Laundering Survey 2007

3. AML policies and procedures

Increasing use of global AML policies            In making decisions about which              Growing ‘internationalization’
and procedures                                   approach to adopt, banks need to balance
As capital flows have become more                the simplicity of a single set of global     of banking is pushing
international and cross-border mergers           policies and procedures against the          institutions towards the
and acquisitions of banking institutions         potential competitive disadvantage of
have driven consolidation in the industry,       applying higher standards in local markets
                                                                                              use of global AML policies
banks must assess whether to apply               around the world. Our survey results,        to ensure they manage
a single set of AML policies and                 however, suggest that, in general,           their AML risk using a
procedures across borders. We asked              concerns about the potential reputational
banks which of three approaches they             damage of inadequate AML policies and        consistent and
used to set their policies and procedures:       procedures has led most banks to adopt       comprehensive approach
a global approach, a local approach,             global minimum standards.
or some combination of the two.
                                                 There are, however, regional variances
Nearly 85% of internationally active             in the results. Notably, banks from North
banks reported that they had a global            America, Europe and Russia & CIS all
AML policy in place, up from 83% in our          have a strong bias towards global policies
2004 survey. Whilst this is a relatively         and procedures, even if in some
modest increase, it is from a high base,         instances detailed procedures are set
and reflects growing acceptance and              at a local or regional level.
adoption of international best practices.

Figure 6
Statement best describing respondents' AML policies and procedures
(excluding respondents only operating in one country)

       (Percentages may not add up to 100% due to rounding)                                              Source: KPMG International, 2007
20 KPMG’s Global Anti–Money Laundering Survey 2007

In the case of the U.S., it is apparent      implemented outside the home country.         By contrast, significant numbers of
that all internationally active banks have   It may also reflect the fact that a           banks in the Middle East and Africa
a global component to their policies         common legislative framework applies          regions have adopted a “local approach”
and procedures, reflecting the need          in Europe and so many of the European         to setting AML policies and procedures.
to implement the extra-territorial           respondents may find it feasible and          There is a reluctance among banks in
components of domestic legislation           economic to implement one set of              the region to suffer competitive
on a global basis, principally the Office    global policies and procedures.               disadvantage by voluntarily adopting
of Foreign Assets Control (OFAC)                                                           higher AML standards than is required
requirements and the requirements            In Russia, a very high proportion of          by law, as well as less focus among the
of the U.S.A. PATRIOT Act 2001 with          banks reported using global policies          regulatory community in pushing banks
respect to, for example, correspondent       and procedures. This is likely to reflect     towards global policies. In some
banking and international private            regulatory pressure, where AML                instances, the standards set by a bank’s
banking relationships.                       policies need the approval of the local       home regulator may not be appropriate
                                             regulator (the Central Bank of Russia,        for ‘export’ to other markets in which
In Europe, there appears to be a greater     or CBR) and a number of banks have had,       the bank operates. This may be because
willingness to apply global policies and     and continue to have, their banking           they are not sufficiently demanding for
procedures on a more consistent basis,       licenses revoked for failure to comply        use in other countries, or are too heavily
with less delegation to local operations.    with AML regulations. Whilst there is no      influenced by local factors.
This is likely to reflect the high-level,    requirement to have a global policy, it is
principles-based nature of AML               a common way for banks in the region
requirements in this region, which makes     to demonstrate that their approach to
it easier to design policies and             AML is comprehensive and aligned with
procedures that are flexible enough to be    regulatory expectations.

KPMG comment
Operationalizing a risk-based approach       they have followed in setting policies in     to the bank’s services in other
through global policies                      their organization so that they can explain   countries or regions without meeting
Global banks face significant challenges     to regulators and internal stakeholders       the AML requirements that are
in developing and operationalizing their     what approach they have taken in each         necessary in those parts of the world
risk-based approach across multiple          country, and why. This is particularly        (whether required by local regulations
business units and territories. There is     important as a line of defense when           or by the bank’s global policy).
also a real need for banks to fully          regulatory expectations change in a
articulate their risk-based approach,        country or region without any formal          Banks also need to focus continually
including how the specific risk appetite     changes to rules or legislation. Where        on the effective implementation of
of the bank has driven the design of the     banks are able to explain what approach       policies and procedures. Regulatory
model. Much of the experience gained         they have taken, and why, this can form       action can equally be taken where
by banks in developing their operational     the basis for an informed discussion with     banks have not applied policies and
risk program under the requirements of       the regulatory community and an               procedures consistently, rather than
Basel ll could also be leveraged in          enhanced ability to avoid gaps emerging       failed to design any in the first place.
developing a comprehensive top-down,         between regulatory expectations and the       In practice, this means focusing on the
bottom-up approach to designing and          bank’s actual AML practices.                  realities of implementing the policies
operationalizing an effective AML risk-                                                    and procedures, such as the clarity
based approach. In addition, some banks      Documentation of local deviations to          of the policies for employees, training
may find it useful to assess the extent to   global policy is particularly important to    and communicating the policies and
which the risk of an AML failure has         help ensure a common understanding            procedures, and the application of
been reflected within the operational risk   across the organization of the policies       these, i.e. how easily and quickly
model of the bank.                           in place in each country or region.           employees can follow processes
                                             Without this, there is a risk that clients    in practice, as well as monitoring
Throughout this process, banks need to       accepted into a part of the group with        effectiveness on a regular basis.
document carefully the thought process       lower KYC standards can gain access

To top