Increased regulatory expectations and enforcing Anti-Money Laundering (AML) compliance pose key operational challenges to banks in South Asia, a new Deloitte survey on AML preparedness in South Asia has revealed.

The report — ‘South Asia Anti Money Laundering Preparedness Survey Report 2020’ — by Deloitte Touché Tohmatsu India LLP (DTTI) revealed that these challenges range from reliance on manual processes, inadequate data and the inability to recruit or retain skilled staff.

This is even as 81 per cent respondents indicated that their AML programmes were compliant with all regulatory requirements. The report highlights siloed risk management approaches across banking operations, customer due diligence, sanctions screening and trade-based transactions as the root cause for systemic inefficiencies leading to fraud. It has suggested the need for strategic investments in re-designing AML compliance programmes in banking and financial services sectors.

Increasing bank frauds

The survey was conducted with leading banks and financial institutions in India, Sri Lanka and Bangladesh earlier this year. The findings of the survey are being released at a time when the Reserve Bank of India has declared that bank frauds in India more than doubled in 2019-20 to ₹1.85 trillion.

KV Karthik, Partner, Forensic - Financial Advisory, DTTI, said: “Historically, AML programmes have been incident-driven with lean teams to manage response to events or changes in regulatory developments. But that is no longer adequate today.

‘Proactive approach needed’

“With increased regulatory scrutiny, and expectations being ‘If you could have known, then you should have known’, banks need to move to a proactive approach to demonstrate their compliance to avoid fines, rather than rely on the traditional reactive approach. This calls for investments in an integrated, enterprise-wide approach to manage compliance and prevent failures. Such an approach that provides a comprehensive view of customers and transactions can make it difficult for criminals to exploit gaps between business systems, databases and countries.”.

Overall, the survey respondents also highlighted technology-related challenges such as high false positives, data accuracy and unstructured data, limited integration with core banking systems, and incomplete coverage of products and processes. This lack of technological maturity and data governance appear to have had a cascading impact on every aspect of the AML programme.

In the area of sanctions screening, nearly 60 per cent respondents indicated that they are struggling with false positives. An ever-growing and complicated sanctions list management has emerged as another major issue amongst the respondents.

In the area of trade-based money laundering, 86 per cent respondents indicated screening trade finance transactions against internal lists, regulatory lists and sanctions lists. The respondents also pointed at challenges such as identifying hidden relationships between trade partners and ports, estimating pricing and invoicing of goods and unavailability of a single automated system that can combine all screening data.

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