The anti-money laundering (AML) function for financial institutions, such as banks and broker-dealers, should be among the largest functions in a compliance department, if not the largest. The major global institutions may employ several hundred or more people as AML officers at all levels, with the largest concentration at the analyst or associate level. Traditionally, most of these AML officers are responsible for the core AML functions of transaction monitoring and client onboarding, both of which are incredibly time-consuming and require substantial resources in order to manage the expansive franchises of the major institutions.
Evolving regulatory expectations, along with actual recent enactments such as the New York Department of Financial Services’ “Final Anti-Terrorism Transaction Monitoring and Filtering Program Regulation,” have further increased the pressure on these institutions to not only execute on these responsibilities, but to ensure that they are reasonably designed and, ultimately, are able to effectively handle the task at hand. These changing demands require the hiring of individuals with a new set of skills, namely those whose strengths lie in the statistical, analytical and technological realms.
Regulators are watching you
All financial institutions have an obligation to monitor for and detect suspicious activity, and then report suspicious activity to the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) via the Suspicious Activity Report. It is fair to say that a majority of the AML staff at any institution will be assigned to some aspect of the transaction monitoring process. The current standard approach is to employ an automated system that scans all transactions in order to detect potential suspicious activity. Like any automated system, the software is not perfect, and the system’s output needs to be investigated further by those with experience in detecting suspicious activity. This is a time-consuming task that requires tremendous resources, especially in a major financial institution that handles thousands of transactions per day.
Throw more resources at your sources of headaches
Financial institutions have a prescriptive menu of elements that need to be obtained before any client can be onboarded. A potential client could be rejected for a multitude of reasons, some of which include having an association with countries subject to sanctions by the Office of Foreign Assets Control (OFAC), the detection by the institution of some other form of negative information or a lack of clarity of who the true beneficial owners are of the corporate entity in question. The onboarding process relies on an expansive staff as well, most of which tend to be junior level.
Thus, the AML compliance function has traditionally taken the approach of “throwing more resources at it,” due to the incredible volume of transactions marked “suspicious” by the automated systems used, and due to the steady stream of new clients that must be vetted and cleared.
Aggressive hiring will probably continue, providing a great opportunity for junior individuals with business degrees, accounting degrees, law degrees, etc., and those who have a good measure of industry knowledge, and can be easily trained.
Regulatory enforcement is changing
But the industry is changing. Various regulatory bodies are putting new emphasis on making sure the systems really work – that they detect what they’re supposed to, include the information they’re supposed to, and are reasonably effective.
All banks must provide this proof to regulators, and financial institutions are increasingly looking at ways to potentially incorporate the rise in available data to help them to be more predictive in these areas. With the right people, this is a realistic goal.
Financial institutions’ hiring strategies are evolving in these two major ways:
- “Testing of ourselves” – more people who are good at quality assurance testing of institutions’ automated systems and of workflow processes, and at quality control of these systems
- Statistical, analytical, and technology functions – more people who have a depth of statistical, analytic and technological understanding: those who can look at the systems and make them more effective.
Ultimately, in order to keep up with this rigorous new era of regulations and regulatory enforcement in the AML arena, institutions need to find a way to marry the technology and data experts with the substantive AML professionals. They’re better together, and by integrating these two functions, the industry can stay ahead of the curve.
John Caruso is a principal in the forensic advisory services practice at KPMG, advising clients on AML risk assessments, independent program reviews, internal investigations, regulatory enforcement cases, and anti-bribery and corruption matters. Before joining KPMG in 2014, John spent almost 10 years as a managing director and the Americas head of financial crimes at Deutsche Bank, where he was responsible for AML and financial crimes compliance for all business divisions, and, prior to that, director and senior counsel for anti-money laundering compliance at Merrill Lynch.
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