Banks battle against money laundering as market complexity increases

The cost of fighting money laundering has risen dramatically for banks across the world as they have become increasingly engaged in the struggle against criminality. However, the task is becoming more difficult due to the increasing complexity of the financial markets in which they operate, including greater exposure to sometimes unfamiliar emerging markets and the dramatic growth of alternative assets, according to a global study by KPMG Forensic.

KPMG's study among 224 banks from 55 countries found that banks' spending on anti-money laundering (AML) systems and processes has risen by an average of 58 percent over the last three years. In North America and in the Middle East and Africa, spending has increased by 70 percent or more. These increases are far in excess of banks' own predictions when KPMG Forensic carried out its last study in 2004, when respondents on average predicted an increase of 43 percent. The biggest spending continues to be on transaction monitoring and staff training costs.

However, just as three years ago banks under-estimated their likely level of spend in the future, so now they still seem in danger of being over-optimistic: on average, they are predicting an increase of only 34 percent in their spending over the next three years to 2010.

Senior management are getting more involved in AML, with 71 percent of banks saying directors at the highest level are actively involved in it, up from 61 percent in 2004. Most respondent banks (85 percent) have a global AML policy, ranging from a high of 100 percent in North America to a low of 58 percent in the Middle East and Africa.

However, there is significant concern amongst banks that governmental and international regulation needs to be more effectively targeted. Half of respondents said they believe that while the overall regulatory burden is acceptable, the requirements need to be better focused, while nearly one in ten (8 percent) believe that regulation should actually be increased in order to combat money laundering more effectively.

In addition, there is evidence that transaction monitoring systems need to be enhanced. Despite sophisticated monitoring technology being available, 97 percent of banks say that they are dependent on the vigilance of staff to monitor and identify suspicious activity, and a third of banks (34 percent) say that they are not satisfied with the effectiveness of their transaction monitoring systems. Fewer than one in five (18 percent) describe themselves as 'very satisfied'.

Karen Briggs, Global Head of Anti-Money Laundering at KPMG Forensic and partner in the U.K. firm, said: "Banks are clearly continuing to make increased efforts to tackle the money laundering threat effectively. These efforts are considerable, but nevertheless many banks are struggling to design and implement an effective anti-money laundering strategy. Significant numbers say that the regulatory environment is not helping them as well as it should do – this is clearly a matter of concern, as effective coordination between parties is one of the keys to defeating money launderers."

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