A regulatory crackdown is underway in the UK, with firms being fined millions of pounds in 2023 for substandard AML processes. FirstAML’s Bion Behdin wonders: Will that be enough for the C-suite to wake up and take AML personally?
How about this for a Catch-22 on money laundering? Half of C-suite executives are only moderately confident in their companies’ anti-money laundering (AML) processes, but 39% have decreased their compliance budgets, according to First AML’s recent survey.
To compound this, while 99% voiced concerns about compliance capabilities — and 75% believe in personal accountability for the C-suite — only 31% ranked this as a top priority. They are unconfident and unmotivated. Concerned but still lack conviction.
Unfortunately for compliance, this is a tale as old as time, another example of a longstanding pattern of contradiction between what is said and what is being done. And if we wish to stand a chance in the fight against financial exploitation, something needs to change.
The role of the C-suite in this is not just about oversight but about leading by example, making informed decisions that reflect a genuine commitment to compliance. This involves not only acknowledging the importance of AML but actively making it a central aspect of business operations.
Quite simply, the C-suite needs to step up and prioritize compliance.
How AML impacts business and society
Earlier this year, the UK’s Financial Conduct Authority released a damning review into regulated firms’ AML processes, saying that “some are still not getting the basics right.” Shortcomings included discrepancies between firms’ registered and actual activities, financial crime controls not keeping up with business growth and a failure to properly assess customers’ activities. This has seen the regulator dish out some hefty fines, with the total amount in 2023 just under £53m.
Some may consider AML to be a paperwork hassle and fines an easier expense to pay — and it is exactly this mindset that lets financial criminals exploit loopholes in the system and carry out money laundering. Why should businesses care?
From a moral viewpoint, by turning a blind eye to compliance, you are effectively allowing dirty money to remain in the system and fuel illicit activity, such as human trafficking and arms sales. So, the system supports these crimes. From a business and financial viewpoint, money laundering can drain financial capital and skew market competition and dynamics. It stifles competition and allows dishonest businesses to benefit off dirty cash. This means the services that truly need funds the most are the ones that suffer.
An industry suffering from lack of investment and expertise
Money laundering is being allowed to profit from inadequate AML processes and reporting. All firms that need to report activity to the FCA require a money laundering reporting officer (MLRO). This role is vital to the AML process but is currently full of obstacles, both internally and from a wider industry perspective.
In November, Financial News revealed that the FCA was contacting hundreds of firms that had “churned through three or more MLROs in the previous three years.” Of course, one reason for high churn rates may be a lack of expertise and qualified personnel. How do you attract people into a position that is not regularly taught or studied — or even known about? Many companies may not have the capacity or resources for a full-time officer and so rely on freelancers and contract work, further hindering consistency.
The issues also run deeper than this. As the Financial News story points out, MLROs can end up as scapegoats for AML failings, with senior management not always adopting their recommendations for enhancing financial controls, and this increased individual accountability can deter employees from taking on the position. But just as importantly, it also shows why compliance begins with the C-suite.
Why compliance starts with the C-suite
There is a reason why, in its latest report, the FCA called on CEOs “to take the ‘necessary steps’ to ensure that their financial crime policies are commensurate with the risk profile of their firm.” A company’s compliance culture comes from the top. How the C-suite view, approach and implement AML directly influences this culture and how the wider company and its employees deal with it.
High churn rates with MLROs indicate a lack of adequate compliance culture and investment which, in turn, can impact regulatory reporting and oversight. What’s more, the MLRO can only recommend changes — it’s on the C-suite to do something about them. So, for AML processes and technology to work to their optimum, they need to be driven by the C-suite.
Management should be able to spot holes in their company’s AML compliance strategy and allocate resources where they are most needed. By showing a commitment to compliance, they are showing employees, regulators and the public that they have a responsible and ethical approach to tackling money laundering.
C-suite, time to step up
In a world of contradictions, one area that can’t afford to be confined by one is AML compliance. Currently, there is a chasm between what is being said by C-suite executives and the reality shown by firms’ AML shortcomings. The impact of money laundering goes way beyond a firm’s bottom line — but it can also directly affect it.
To bridge the gap, the C-suite has to take responsibility for implementing steps to build a culture of compliance throughout their firm and set an example. This is especially apparent in light of incoming UK reforms to AML/CTF supervision, which will further increase scrutiny on AML processes and systems.
If the C-suite ever needed motivation to prioritize compliance, providing a positive benefit back to society, these reforms and the FCA’s ongoing crackdown could spark it. But regardless of any regulatory changes, the moral, social and business imperatives of conducting AML should serve as enough motivation to drive this change.
C-suite, over to you.
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