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Spotlight on: financial services

Increasing demands of Know Your Customer (KYC) and Anti- Money Laundering (AML)


Many of the region’s regulators are now requiring the boards of financial institutions to demonstrate active management of money laundering and terrorist financing risks. The result is that client due diligence now goes beyond identifying and verifying the customer. Institutions must also identify beneficial ownership and control, and conduct ongoing due diligence and scrutiny, via customer monitoring and transaction surveillance systems, throughout the course of the business relationship.

At the same time, regulators are setting higher standards of due diligence and requiring more comprehensive information on a customer’s customers, including beneficial ownership information that is not currently easy to obtain in all APAC countries. Some financial institutions are struggling to fulfil these obligations, especially in terms of relying on their direct customers conducting their own due diligence around beneficial ownership.

Our survey respondents in the financial services sector report a sharp rise (46% up from 22% in 2015) in the negative impact of regulation — well above the regional average of 31%. This has required financial institutions to make significant changes to control frameworks, driving up the cost and resources required for compliance. Where increased costs have prompted institutions to outsource their onboarding or compliance processes, such arrangements must be monitored with particular care. Institutions can outsource a function, but they cannot outsource accountability.

Whether outsourcing or insourcing, financial institutions should also optimize transaction surveillance to reduce false positives. Recent regulatory actions have exposed material deficiencies in current supervision and surveillance capabilities.

Financial Institutions need to stay on top of current and emerging regulatory risks on an ongoing basis; they also need to take a holistic approach to improve their supervision and surveillance capabilities.

Essential components of an anti-money laundering program

“Regulators expect financial institutions to be responsible for maintaining a robust AML, KYC and sanctions compliance program for their entire enterprise footprint, including third-party outsourcing vendors. As such, financial institutions must ensure their outsourcing vendors can maintain the same AML compliance control standards as the financial institutions themselves.”

Manhim Yu, Partner, Fraud Investigation & Dispute Services, Hong Kong

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