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Banking & Finance

Banks need the right settings to implement AML measures

27 Feb 2020, by Amy Sarcevic

Stopping the flow of illicit finance will not be possible without real-time, AML-technologies, combined with huge swathes of intelligence. Yet these same innovations could open up new opportunities for criminals if they prove non-resilient, argues Deloitte Financial Crime Partner, Lisa Dobbin.

“Every new technology inevitably brings a new element of risk,” said Ms. Dobbin ahead of the Australian Financial Review Banking & Wealth Summit.

“Implementing the wrong thing, or doing so poorly, can simply open up new vulnerabilities in the system. It is just as easy to systemise failure as it is success,” she added.

With concerns over cyber resilience – and the recent wave of AUSTRAC enforcements – Ms. Dobbin understands why bank executives may be hesitating over new AML technology. And that they may opt for a more conservative or traditional approach in the medium-term, while shoring up foundational compliance elements. She believes banks may need support to move forward with their digital AML initiatives.

“We absolutely need these tough measures to ensure our financial system doesn’t become a magnet for criminals. But equally, banks need the encouragement to take risks when it comes to adopting technology to enhance the effectiveness of their AML – and wider – operations,” she argued.

Ms. Dobbin believes much of this encouragement is already underway with the FINTEL Alliance – an amalgamation of 28 international and domestic government and private sector members. Additionally, with the expansion of consultative work being carried out by AUSTRAC.

But although the industry is beginning to receive the assistance it needs, she says there is still further scope to help banks better comprehend the risks and implement risk-based frameworks.

“Let’s not forget, banks are working to address a large and complex body of legislation (600-700 pages) that is predominantly risk-based,” she said.

“This requires a deep understanding of the unique risks faced by each organisation, and the appropriate systems and controls to manage these.

“Through the current enforcement actions and ensuing settlements, we are beginning to get more clarity as to how a suitable risk-based approach will be assessed. Each time AUSTRAC launches an action, other reporting entities can absorb those learnings to improve the way they address the AML requirements in their own organisation.

“But we also need positive reinforcement around the right corporate culture.”

Ms. Dobbin argues that with more guidance and support, the industry can lift its lift standards and take major strides in tackling AML.

“In my experience, reporting entities are very keen to maximise the effectiveness of their investment in AML,” she said.

“The risk-based approaches needed to mitigate financial crime risk and meet regulatory requirements directly impact everything – from systems, to organisational structure, to skills, to culture and the way banks interact with their customers.

“A fundamental shift like this is a hard thing to get right first time, particularly when new technologies and systems are continuously available and need to be introduced.

“I think collaboration is key here. AUSTRAC will need to continue to work with the industry , encourage them to be transparent and have the freedom (and confidence) to experiment. This will ultimately help them become individually and collectively stronger.”

But Ms. Dobbin adds that avoiding litigation and penalties alone will not be enough to make this approach work.

“Collaboration will need to be driven by a common, higher purpose – in this case – disrupting serious criminal activity and protecting Australia’s social and economic reputation,” she said.

Having said this, it’s important to take a strategic view on recent civil penalties, she argued.

The most recent major bank fine of $700 million is the current benchmark for where penalties are likely to go. And the initiation of a maximum fifteen years prison sentences for directors and executives is now in the wings.

“These penalties could trigger the wrong short term behaviours, including rushed and uninformed decisioning on technology acquisition, conservative increases in regulatory reporting, or poorly considered increases in costly personnel resources,” she said.

“In a constrained spending environment, this can sometimes come at the expense of tools like machine learning, real-time data-aggregation platforms, rapid automation, and text and voice analytics, all of which can help banks achieve better outcomes, much more efficiently.”

Ms. Dobbin said it is impossible for regulation to stay ahead of tech innovation. So, building a collaborative regulatory culture that encourages responsible experimentation with new technologies is key.

“We are on the cusp of some real opportunities in our industry. If we can continue to align regulators, government and the regulated sector with the bigger picture – and consider what we need to do to make Australia a safe place to invest and do business – then I think we’ll see great outcomes,” she concluded.

Lisa Dobbin will open up debate on this issue, as part of a wider panel discussion, at the Australian Financial Review Banking and Wealth Summit, to be held 30-31 March 2020.

Learn more and register.

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