A series of “compliance, coffee and cake” seminars, organised by the International Compliance Association (ICA) for the European Bank for Reconstruction and Development (EBRD), have uncovered fascinating insights into important subjects including the Financial Action Task Force (FATF) Mutual Evaluation process, trade-based money laundering typologies, sanctions risk assessment, RegTech (including digital identity and KYC), correspondent banking and much more.
Each of the nine virtual sessions delivered over the course of several weeks was attended by over 150 delegates who benefited from practical tips and insights in their area of interest.
Correspondent banking – balancing risk
The financial crisis of 2008 has cast a long shadow on the financial services industry, with many of the knock-on effects still felt today. Risk appetites declined precipitously; many financial institutions opted to exit relationships assessed as being high-risk, unprofitable, or simply “complex” – such as those with money service businesses (MSBs), foreign embassies, international charities and correspondent banks.
MSBs and other financial service providers – often referred to as “alternative money transfer services” – hold accounts with formal financial institutions (banks), allowing them to perform transactions and serve as an access point for traditionally underserved client bases. Closures of these entities’ bank accounts affect financial access for the individuals and populations those businesses serve.
The de-risking of correspondent banking relationships, specifically the downstream banks that are domiciled and regulated in a home-state and wish to move euros, US dollars and pound sterling, will require the services of an upstream correspondent banking relationship in the host country. It is because of the importance of these upstream banking relationships, and the appetite to de-risk because of the perceived anti-money laundering (AML) and financial crime risks, that ICA and the EBRD introduced the one-day workshops to support the EBRD Trade Facilitation Programme partner banks.
The workshop on balancing risk enabled over 350 participants from Ukrainian partner banks on Day 1 and non-partner banks on Day 2 to discuss with Tyrone Griffiths (FinCrime Protection Limited), a partner and external faculty member of ICA, key areas of concern through an interactive presentation that included polls, scenarios and immersive discussion.
Participants were asked beforehand what their key concerns were when completing the Wolfsberg Questionnaire. Answers included “entity KYC and risk assessment”, “Products & Services”, “Payments & Transparency” and “Business Wide Risk Assessment & Steps to avoid De-Risking”.
The Wolfsberg Group, similar to the Financial Action Task Force (FATF), seeks to harmonise AML/financial crime controls. Financial institutions globally complete the Wolfsberg Questionnaire based on their internal controls and interpretation. This challenge – their internal controls and interpretation when assessed by US, UK and European banks (upstream correspondent banks) – provides the challenge and subsequent de-risking due to concerns by their respective regulators.
Competing legislation, regulation, governmental sanctions and political pressures present challenges across varying jurisdictions. It is these challenges, among others, that the Wolfsberg Group seeks to overcome through the use of the Wolfsberg Questionnaire when completed by the downstream banks across jurisdictions.
AML/financial crime regulations and their controls can be complex. Add to that the jurisdictional interpretation of legislation, regulation and maturity of controls by financial institutions and it becomes impossible to cover it all in a one-day workshop. The session was rather aimed at creating awareness and challenging the conventional thinking of financial crime professionals to avoid de-risking by the upstream banks.
Regulators, non-governmental agencies and non-supranational organisations, such as the UK Financial Conduct Authority (FCA), the US FinCEN and the European Banking Authority, have expressed concern about downstream banks being de-risked post the financial crisis. Both ICA and the EBRD sought to understand what further support could be provided to the workshop participants.
In a short survey, 40 per cent of participants said they would like to learn more about compliance, and 45 per cent said they would like to enhance their knowledge. The remaining 15 per cent said they wished to refresh their knowledge.
Some of the additional topics that participants said they would like ICA and EBRD to cover in the future include:
- a better system of compliance and risk management in other countries
- trade finance compliance and due diligence
- suspicious transactions in trade finance
- anti-money laundering (AML) and counter terrorist financing (CTF)
- correspondent banking
- fraud, money laundering cases
- payment and transparency
- outward remittance
- KYC Questionnaire for PEPs
- how to open a correspondent account if everyone is refusing to
- offshore countries and their trends
- anti-bribery and corruption (ABC)
- practical examples in identifying circuit operations
- similar refresher sessions
- trade finance products
- new updates on AML/CTF typologies
- international AML/CTF standards
- virtual currencies and compliance
- AML/CTF/compliance analysis of each separate phase during the cycle of one terrorist financing product
- trade finance – fintech
- sanctions and embargos
- further examples of PEPs, relatives and close associates
- risk management and compliance.
The series continued with a session on trade-based money laundering typologies held on 3 June and led by Aamar Ahmad, Managing Director, Sigma Risk, and an ICA faculty member. The session provided background information on trade-based money laundering, as well as current trends and typologies in the context of Covid-19.
With sanctions becoming an increasingly hot topic, a session dedicated to sanctions and risk assessments was held on 8 June and hosted by Pekka Dare, ICA Vice President. Dare began by identifying sanctions as one of the most complex and challenging areas of compliance. He provided insight into the so-called sectoral sanctions, and offered delegates ways to manage their impact. He further highlighted the differences between comprehensive sanctions and more targeted ones and explained some of the issues and risks associated with them.
He closed by describing the various controls that can be put in place to deal with sanctions and shared how companies can adopt best practices and screening.
Neil Isherwood from Dun and Bradstreet led the next session on 15 June on the topic of “How practically to apply new technologies and innovations to the CDD process”. Isherwood highlighted perpetual KYC and people and network resolution as some of the key themes currently being discussed in the industry. Both areas have a vast potential and require a good amount of foundational aspects to be in place in order to be successful, he remarked. The session focused on the practical applications of these areas and included real life examples.
Next in the series was a webinar on 22 June on FATF’s Mutual Evaluation.
Designed to help attendees understand the process, the session was led by Andrew Clarke, Global Lead – Financial Crime Prevention, ICA.
No country in the world is fully compliant with FATF’s regulations and the process is continuously updated, Clarke began.
“When a new threat presents itself, any new organisation may take this threat as part of its responsibilities, the proliferation of weapons being one example of a threat that was incorporated in the responsibilities of FATF,” he continued.
Changes in technology bring about some updates to this process, with technology around virtual assets being just one example.
A follow-up session on FATF’s Mutual Evaluation, where Mongolia was examined as a case study, was held the following week. The webinar focused on Mongolia’s experience and lessons learned from the grey listing process. The session was led by Gantsetseg Myagmarjav, Senior Supervisor, FIU – Mongolia.
Pekka Dare, Vice President, ICA, David Robson FICA, Associate Director, ICA, and Simone Jones, Senior Client Learning Solutions Manager, ICA, discussed “How can embedding effective learning support FC risk management in your organisation?”.
Dare opened the session with a quote from Dr Marcus Pleyer, President of FATF, and a keynote speaker at ICA’s 2021 BIG Compliance Festival, who said: “You cannot make AML more effective by using digital tools only – you need trained people.”
He went on to highlight the role of compliance training in helping to ensure that compliance and financial crime prevention professionals were well equipped to tackle some of the most serious challenges impacting society – including money laundering, fraud, financial crime, human trafficking, drug trafficking and many more. The session went on to provide more insight into different approaches to training that have proven to be effective and engaging.
You cannot make AML more effective by using digital tools only – you need trained people.
The final session was led by John Mair, Director, Head of Project Integrity, EBRD. The session provided attendees with an opportunity to ask questions and learn how various issues related to their profession are being approached by the EBRD.
Some of the questions included challenges they face in their day-to-day role, advice on the direction in which they can take their career, the characteristics of a good compliance professional, and so on.
Commenting on the series, Mair concluded: “This series of webinars was something of a culmination for TFP and OCCO on the matter of de-risking – where less well-known financial institutions are dropped by global banks for AML/CTF reasons, sometimes for reasons of misunderstanding.
“For some time TFP and OCCO have had leading roles at the IMF, Wolfsberg Group and FATF on the de-risking theme. It is good, therefore, to bring that high-level policy development work to the level of a pragmatic and interactive programme with financial institutions in the economies where the EBRD invests – where de-risking can have very serious adverse effects on trade and hence economic and social impact.”
This article has been reproduced with the kind permission of the ICA.
This series of webinars was something of a culmination for TFP and OCCO on the matter of de- risking.