AML Implementations Extend Beyond Compliance

The US-led initiative to curb illegal money trade, fraud and money laundering activities is starting to catch on here in India as well. Majority of Indian banks and financial services entities are fast embracing Anti-Money Laundering (AML) technologies to counter such threats, as also to become compliant with the norms laid down by regulatory bodies such as the RBI.

Banknet India and the Indian Institute of Banking & Finance (IIBF) recently organised a congregation of “C” class executives from the banking arena to discuss some of the key issues facing the industry. Bulk of the speakers and the attendees present at the event agreed that Know-Your-Customer (KYC) and AML implementations are matters of high priority for present-day bankers.

According to the International Monetary Fund (IMF), the amount of funds laundered illegally every year could be between 2-5% of the world’s gross domestic product (GDP). Globally, investment in AML software, particularly in North America and Europe, is expected to hit $375 million by 2009, over the total spending of $335.4 million in 2006.

However, the study suggested that the highest growth in terms of adoption for AML software will come from the APAC region. Currently, the domestic AML software market is estimated to be in the range of Rs 200-225 crore and is further expected to boom as the market continues to mature in the coming years.

But according to some, mere deployment of technology won’t be suffice and banks will need to adopt a more proactive approach in order to deal with the issue.

Highlighting the role of banks and financial institutions in dealing with money laundering instances, K. G. Bhandari, senior vice president, Head Risk Management, IndusInd Bank said, “In today’s highly evolved banking landscape, banks especially larger ones with geographically dispersed locations often have a hard time keeping a track of where the money laundering transaction is taking place. In order to keep a tab on such suspicious activities, banks need to stay vigilant and carefully evaluate their internal systems and policies and indulge in constant monitoring of their entire operations.”

The inclusion of parties such as insurance companies, fund managers, brokerage firms, casinos, real estate companies under the AML compliance directives by the regulators only goes to show the gravity of the problem. While the earlier AML guidelines only applied to pure play banking firms, the new changes in the regulatory policies are a clear testament to the fact that the efforts to combat money laundering are intensifying.

According to Hanuman Tripathi, managing director, Infrasoft Technologies, “The general perceptions about AML technologies have matured in the last couple of years. As opposed to looking at AML implementations strictly from a regulatory perspective and for demonstrating compliance, banking and their financial brethrens are now embracing AML solutions more strategically.”

“Banks and financial institutions are now starting to think in terms of how they can leverage AML solutions to exploit business benefits that extend beyond basic regulatory compliance. Increasingly, banks are now beginning to see AML regulations as a unique business and marketing opportunity wherein they can monitor, analyse and subsequently act on the relevant customer information gathered through the AML compliance engine. Financial institutions can leverage their AML solutions for various customer-marketing initiatives that can allow them to enhance and retain customers, improve product offerings and even increase the overall revenue,” informed Tripathi.

However, the key to a successful AML implementation lies in the solution’s ability to gather relevant data and unless it can identify, extract and assimilate data which can be used to better understand and predict customer behaviour, an AML solution won’t yield the desired return on investment (ROI).

“This ability can also assist banks in establishing a strong enterprise-wide risk management practice as the information gathered via the KYC and the AML engines which evaluate transactions at deeper levels can be used to have a “single view” on customer activity,” said Sanjeeva Murthy B K, VP " Compliance, Kotak Mahindra Bank.