"IIBF Seminar on Anti Money Laundering Know Your Customer"
IIBF Seminar on Anti Money Laundering & Know Your Customer’ ‘ Lucknow 14th September 2006 Vasant Godse Background The process of transforming illicit funds into legal capital. Involves Placement /Layering/Integration Money laundered annually nearly 3 to 5 % of World GDP or USD 500 billion to 1.5 trillion. Organized crime groups becoming more global and carrying on their activities far away from their geographic region Not only economically destabilizes a country but also exposes to terrorist attacks,threatening its integrity & sovereignty Result: International organizations and regulators to developing international standards and best practices to address to money laundering issues in a collaborative manner Players/Detectors Who is watching? Who are involved? FATF/UN Bankers European Union Lawyers, Directives Car dealers, Basel II Real estates builders, OFAC Accountants and USA Patriot act Others, who allow their BSA businesses to be used by APGML someone to launder the proceeds of a crime. Wolfsburg Principles on Private Banking and (23 industries covered in Correspondent USA) Banking All countries’ regulators RBI Guidelines – KYC KYC guidelines to prevent banks from being used, intentionally or unintentionally, by criminal elements for money laundering Components Customer Acceptance Policy Customer Identification Procedures Monitoring of Transactions; and Risk management Two broad approaches to controlling money laundering: 1. Know your customer and correspondent. 2. Monitoring the transaction flows. (Correspondents yet to be covered in India) Data Information requirements Compliance expectations Bank must locate, extract, warehouse and assimilate data Solution that can evaluate transactions at more details Single view on customer activity Data/Informational needs Data Acquisition from source system, transformation and loading capabilities. Data analysis engines Analysis and detection capable of revealing pattern Identify behavior changes System in place to document all findings Ad hoc research capabilities Technology Criteria Any solution for AML compliance has to address to the following issues:- Monitoring of individual transaction Profiling of risk in respect of existing and new customers Referencing the transaction with regard to the watch list Marinating of records on customers, transactions, regulations and their up-dates Analytics to assess and develop patterns of client behavior Facilitating regulatory reporting and related requirements Providing alerts and Generation of audit trails Technology Offers KYC Risk Assessment • Maintains & monitors details • Manage customer account for customer opening, acceptance & ongoing maintenance • Profiling technique to evaluate customer & • Risk based customer transaction modeling • Creates customer behavior • Risk class based on risk pattern factors and scores • Tool for reviewing suspicious • Links company wide activity customer acceptance • Real time transaction enquiry documentation requirements tools • • Stores, manages and queries Automates creation and filing electronic documents of suspicious activity Comprehensive audit trail Technology Offers Legal/Regulatory Detection of Black listed compliance customer • Electronic workflow from • Detects violations receipt of information to consistently across response back enterprise for a multitude of global sanctioning bodies • Automated process to import the request for • Real time, intra-day information interfaces to all at-risk business system • Flexible search algorithm • Reduce expensive due • Electronic filing of diligence responses back to inquiring parties • Provide automatic sanctioned party updates • Comprehensive security control to ensure • Integrates with multiple confidentiality disparate business systems Technology– Present Status Product vendors as well as solution framework providers like L&T Infotech Multiple approaches to AML implementation Basic transaction filtering and exceptions based reporting systems that give 'hits' and 'alerts' based on the violation of rules. Artificial intelligence based adaptive learning systems that monitor activity patterns in transactions and accounts to detect and prevent money laundering Integrating these solutions with the current architectures and developing multiple interfaces to existing systems More vendors and processes. Additional costs in maintaining multiple packages Security and database issues. Technology Trends Browser-based interfaces, for enhanced usability and ease of deployment Visualization tools, such as network diagrams to depict account relationships Peer profiling, network analysis, risk scoring and other analytic approaches currently being emphasized by regulators Enhanced case management functionality with rich workflow and investigation features “Compliance dashboards,” to integrate output from multiple regional and line of business systems, including the integration of AML with anti-fraud and other compliance systems Source: Celent, Trends in Anti-Money Laundering 2006. Technology Trends Additional modules to make a more comprehensive solution suite, including account opening due diligence and watch list filtering in addition to transaction monitoring Integration with SWIFT and other payments networks to enable real time interdiction of wires Outsourced AML services, offered by major core banking processors such as Fiserv or Metavante, as well as new shared data center initiatives focused solely on AML The pursuit of scalability, to achieve greater competitiveness for business from large financial institutions Introduction by high end vendors of “AML lite” versions of their products, aimed at the emerging small and midsize FI market. Commandments for Compliance AML Compliance is a Board level and not only Branch level issue Size of the bank is immaterial Locations is redundant AML Compliance is NOT a local problem Compliance is a business challenge not MIS drill Address to data needs and data consistency Training and its proper documentation for regulatory review NO OPTION BUT TO GO IN FOR TECHNOLOGY SOLUTION Thank You Vasant.email@example.com