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The Asia Pacific region is a diverse and resilient market with an established but evolving regulatory risk environment. Most countries in Asia have the regulatory frameworks and governance controls in place to manage financial crime risks and respond to changing regulations. New areas of risk are also being looked into, and anti-money laundering (AML) is one of them.
As key financial centres in the region, both Singapore and Hong Kong have well-run regulatory environments that other countries look to for best practices. Both jurisdictions have been intensifying efforts in AML in response to revisions to the global policy recommendations set by the international body created to address money laundering, the Financial Action Task Force (FATF). The Hong Kong Monetary Authority has doubled the size of its AML team to strengthen supervision amidst the growing scrutiny of monitoring and compliance systems at global financial institutions. Singapore has recently completed a comprehensive national AML assessment of both the financial and non-financial instutions and the results of this report have been published publicly.
To remain competitive, banks and other financial institutions in Asia Pacific continue to place an emphasis on managing the ongoing risk of conducting business. While complying with both local and global regulatory requirements can be costly for organizations, the costs of non-compliance are typically greater than the fines or enforcement actions that often follow a regulatory breach. The impact to a company’s brand value and the cost of fixing the problem can be very much more expensive, having a tangible impact on the bottom line of the organization. This is why the overall ongoing efficiency and effectiveness of a company's regulatory compliance programmes and risk management strategies are crucial.
More stringent and aggressive enforcement of existing regulations, exhibited by large and frequent regulatory actions, has resulted in global financial institutions seeking to standardise policies and procedures across geographies and lines of business. For banks and financial institutions in Asia, this means managing the demands of domestic compliance requirements whilst also observing the expectations of regulations in jurisdictions where there is exposure to AML, sanctions or tax compliance laws. This often means designing compliance programmes that consider national requirements across Asia, as well as the demands set by the likes of the US Treasury’s OFAC programme, or the UK’s HMT list. Other considerations are growing and issues such as Anti-Bribery/Corruption (ABC) regulations and tax compliance rules such as FATCA must now be considered in parallel to AML and sanctions obligations. What this means in practice is that institutions must continuing adapting to different compliance rules that may overlap and sometimes even differ.
The pace of regulatory change is certainly moving faster. Regulation is becoming more in-depth, and the focus on regulation has moved beyond just technical compliance to include the ongoing efficiency of the entire risk management programme. The evolving banking landscape in Asia has also resulted in new forms of risk.
Banks now need to look at ways to manage the risks that have come about with new developments. From mobile banking to electronic banking, banks are serving their customers across a widening array of channels. The proliferation of mobile devices has given rise to banking services for large unbanked populations in developing countries. On the other hand, the rapid internationalisation of trade, increasingly in currencies such as the renminbi, has brought about various implications and risks to cross-border settlement. All these developments mean that we are witnessing today new areas of compliance focus which require extended chains of extensive investigations that need support from the right data and technological solutions.
Due Diligence is Key
Risks relating to anti-money laundering, anti-bribery and sanctions screening weigh heavily on financial institutions and their employees. In spite of this, there is a lack of readily accessible customer data for due diligence screening. Adding to the challenge is the heterogeneous nature of the Asia Pacific landscape, where factors like language and culture can impact the operational process of risk management.
For example, people in a particular country or from part of a particular culture frequently have the same or similar names. These same or similar names make it very challenging for software to differentiate between them. Additional pieces of information such as gender, age and height are needed, but these are often not available. There often is also a lack of consistency in translating / transcribing names in Asian scripts to Latin characters.
Because their activities have traditionally been seen as a cost centre, compliance departments face intense pressure to operate efficiently. The good news is risk and compliance management is getting the attention it deserves within organisations, with the management often working in tandem with the legal, compliance and IT departments to manage a comprehensive risk and compliance strategy.
Compliance data and screening solutions with effective screening and analytics capabilities will help organizations become more responsive to changes in the regulatory regime. Organisations should consider a solution that can help process, analyse, and find links and associations in high volumes of complex data quickly and accurately. At the same time, the ability for the solution to scale from tens of searches to thousands or millions of daily investigations is crucial. Banks and financial institutions in Asia Pacific will be able to scale for innovation and growth through the competitive advantage they have gained from the insight of knowing the risk of their customers effectively.