More automation needed to fight financial crime across the financial services industry - says new PwC Anti-Money Laundering study
By Sinead Ovenden, Risk & Regulation Partner, PwC Ireland
PwC’s latest survey across the entire financial services industry (includes funds, banking, credit servicing, payments and E-money firms), published today, reveals more automation could be used to strengthen the fight against financial crime successfully. The management and oversight of Anti-Money Laundering Frameworks are a key focus for financial services regulated firms in Ireland.
Three-quarters of financial services firms say risk assessment process is entirely manual
Three-quarters (75%) of financial services firms continue to rely on manual risk assessments to assess financial crime across their business. Criminals are becoming more sophisticated in relation to financial crime with real time risk assessments being a powerful tool to mitigate financial crime. Just 3% of firms confirmed that they use a fully automated risk assessment process.
Financial firms are obliged to carry out a risk assessment to measure the potential risk of money laundering in their organisations. Most firms do this on an annual basis which can take many months to complete. The data is then often out of date and does not inform a firm of the up to date risk. Increased automation will enable firms to better mitigate financial crime on a real time basis.
Only 52% of firms have automated some aspect of onboarding new customers
Identification of customers is a regulatory obligation. The survey reveals that significant manual intervention is still required where customer due diligence is concerned. For example, only 52% of firms have automated some aspect of onboarding new customers. Unsurprisingly, almost 90% of respondents believe that there is scope for further automation to improve their customer due diligence onboarding process.
Looking at specific sectors, many large retail banks and E-money firms have automated solutions to enable onboarding of new customers via an app on the phone but other industries are still heavily reliant on paper based processes. According to the survey, the funds industry relies very heavily on emails (more than 85%) rather than on-line user friendly portals. This industry, in particular, is actively looking at ways to automate the onboarding process which will enable quicker and more efficient processing.
Less than one-third are planning to invest in anti-money laundering technology in the year ahead
Just over half (51%) of firms interviewed plan to invest in anti-money laundering technology over the next 5 years with less than one in three (31%) planning to invest in the next 12 months. This is a key area of focus for the Central Bank of Ireland as the Regulator which is planning to offer a ‘sandbox’ programme for firms to test new technology in a safe environment.
The survey shows that nearly a third (31%) of respondents’ anti-money laundering technology infrastructure is based on multiple interconnecting systems which are not integrated. Fragmented systems result in 90% of firms having challenges with their reporting processes due to manual intervention. Regular, accurate and timely reporting is critical for good governance.
Nearly two-thirds outsource some or all of their anti-money laundering activities
Anti-money laundering is operationally resource-intensive. This is why 61% of respondents outsource some or all of their anti-money laundering to low cost centres of excellence, such as in India and South America. While this reduces costs, it can increase risk if not closely monitored. Boards should be as close to outsourced activities as they are to internally managed activities.
New Individual accountability for senior management may result in personal monetary penalties
The new Senior Executive Accountability Regime (SEAR) holds the Head of Anti-Money Laundering responsible for managing the function. The Regulator can now take enforcement action against that individual leading to personal monetary penalties.
AML regulations are ever increasing in an attempt to keep pace with financial crimes. Ireland has pitched to host the new EU AML Authority (AMLA) which will be established in 2024. This will become a European Regulator supervising anti-money laundering compliance across all member states and will issue a new common rule book. This will only increase the requirements to combat financial crime.
With both SEAR and a new EU Regulator on the way, having a robust AML framework is crucial in managing the threat of financial crime. Increasing automation can support better governance, reporting and overall management of risk enabling senior management to discharge their individual accountability.
Ireland continues to progress in strengthening measures to tackle money laundering and terrorist financing and has received an increased rating in the most recent inspection by the global Financial Actions Task Force in 2022.
Technology is the only way to keep up with the race against financial crime and there is much more to do on automation. Many clients have invested over the years but the key to success is a fully integrated technology system. Disparate technology makes it more difficult to gather information, identify suspicious activity and report financial crime.