The tipping point: it’s time for banks to act on AML and financial crime breaches

Every year global financial institutions incur eye-watering fines from regulators for failing to prevent financial crime or money laundering, despite the enormous resources they have at their disposal.

 

In recent years, there has been a growing trend of banks treating AML breaches as a cost of doing business and accepting the regulatory fines that come with them. However, regulators are responding by increasing the frequency and number of fines, with global fines for failing to prevent money laundering and other financial crime rising by more than 50 per cent in 2022.

 

As regulators’ frustration mounts and fines escalate, we are fast approaching a tipping point where banks must act urgently to stop the rot. Fines in the hundreds of millions of pounds can no longer be accepted as an occupational hazard. They carry a huge reputational impact along with a material effect on the bottom line.

 

Why banks’ regulatory programmes fail

 

Even when banks try to address their flaws via intensive remediation programmes, they often fail or under-deliver against their goals. The heart of the problem is that banks’ internal change functions and operational areas are not equipped to deliver multi-layered regulatory programmes under intense scrutiny, with externally mandated, immovable deadlines. Typical mistakes include:

• Inadequate scoping, or underestimating the scale of the programme until it’s too late
• Data and reporting failures obscuring the real problems
• Failure to break the programme down into clear steps which will deliver the required objectives
• Failure to convince boards to provide the necessary budget and resources
• Compliance and audit teams being disconnected from operational reality
• Losing sight of the key objectives as the project develops
• Difficulty in making the necessary process and culture changes, including arrogance and not taking financial crime initiatives seriously enough
• Failure to appreciate that programme outcomes need to be embedded in the business, not just “delivered” as part of a checkbox exercise
• The use of an inadequate closure process that fails to satisfy the regulator’s requirements or to demonstrate the change delivered by the programme

Remediation programmes are much harder than ordinary projects

 

Delivering a large-scale regulatory initiative such as an AML remediation programme requires a highly structured approach.

 

It’s crucial to recognise the substantial differences between these programmes and more straightforward projects, for example the implementation of complex infrastructure such as a new customer portal.

 

Remediation programmes are frequently reactive in nature, stemming from significant organisational failures such as a major breach of AML protocol or the exploitation of operational vulnerabilities by criminals. The understandable desire of banks to respond swiftly and show decisive action is often at odds with what is actually needed to deliver success in the long term. The correct solution is likely to be a meticulously planned, well-defined, multi-year change programme that spans many parts of the organisation.

 

Moreover, substantial financial crime programmes often necessitate shifts in culture and behaviour, which demand considerable dedication and strategic planning to instil, in contrast to the quick fix of redesigning a particular process, for example.

 

Finally, regulatory programmes must withstand scrutiny from regulatory bodies. This entails a comprehensive documentation process, a robust governance framework, excellent internal and external communication, and a carefully structured closure process. This ensures that ultimate outcomes are aligned with the programme’s deliverables, and that this lineage is well-documented and verifiable when examined by the regulator.

 

How can bank senior leaders act to ensure successful regulatory change?

 

In today’s large financial institutions there is usually a complex regulatory or remediation programme in progress somewhere in the organisation at any given time.

 

Senior banking leaders should consider the merits of establishing a permanent team of specialists to spearhead these programmes. If that’s impossible, such a team should be put in place as soon as the need arises.

 

Organisations must determine whether they have the necessary expertise in-house. Do they have enough people who have successfully delivered this type of programme before? Does the senior team have the expertise and ability to manage such a programme?

 

New team members may need to be recruited: people who have been through these programmes before who understand the process, pitfalls, tools and support needed to complete the job.

 

External consultancies or advisors partnering with internal teams can be of great benefit. These should be specialists who have successfully conducted regulatory remediation projects, who have worked with regulators, and will understand the situation from day one without the need for a steep learning curve. Exceptional delivery capability is crucial.

 

Download the financial crime programme playbook today

 

At Beyond FS we have considerable first-hand experience in delivering successful regulatory change in both extreme and less extreme circumstances, with a strong record of getting these programmes on track swiftly.

 

Our new playbook, for senior leaders with oversight or responsibility for complex financial crime or regulatory change programmes, offers practical insights that will help bring programmes to a successful and timely conclusion. In Fine Prevention: Why financial crime and regulatory programmes fail and how to fix them, we explore why programmes fail, and what can be done to deliver success, achieve the stated programme objectives and build frameworks for ongoing compliance.

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Fine Prevention: Why financial crime and regulatory programmes fail and how to fix them