When Basic AML Training Just Isn’t Enough

Deutsche Bank is reportedly leading an internal investigation into an alleged USD6bn laundry, using ‘relatively FCAbasictrainingsimple transactions’ to clean cash. Simple transactions used to launder money should be easy to identify – if the software does not pick it up, then the employees handling the transactions should be able to spot a suspicion. Basic anti-money laundering training would guide someone to tell their AML team if something in a transaction does not look right. What if it did, and the message is still not getting through?


Regulated financial institutions spend money on ineffective training programmes; employees spend time attending training sessions that offer no new information on the subject or on how to approach the issue at hand. There are a myriad reasons why training programmes do not have the desired effect, but why do firms still use them?

They do so because they have little choice. A robust regulatory environment, a requirement to train all employees on the risks associated with financial crime and the spectre of a large financial penalty for not doing so have backed banks and other regulated firms into a corner. Gone are the days of leaving all knowledge of money laundering, terrorist financing, sanctions busting and bribery to the compliance department. In the present environment, we have to train all employees, management, directors and the C-suite on financial crime risks. And this, as compliance officers know, comes at a great cost to a bank.

Compliance generates no revenue – the compliance department is a straight-up cost centre. Although the argument that having an effective compliance programme in place could save you a few million dollars in regulatory fines is quickly gaining ground, compliance officers – it appears – are still bound by tight budgets. This is sometimes to the detriment of quality training, forcing compliance officers to compromise on the standard of training they want to deliver to employees.

Compliance budgets are larger than they were a few years ago. The coffers are deep enough to attract and retain talented individuals to maintain good compliance procedures in banks, and to ensure that every employee has at least a basic grasp of anti-money laundering, sanctions and anti-bribery and corruption requirements – how it works and who the ‘bad guys’ are. But compliance training where employees sit through another session on placement, layering and integration and learn nothing more relevant to their role, do not encourage anyone to think in terms of risks posed to their business line.

Beyond the money laundering cycle

Basic training has done a great job; meet bank staff from any division in a corporate, retail or investment firm and they will be able to trot out the three stages, and this was not the case five years ago. Except now, the information comes by rote – it is learned, absorbed, recalled when asked but is it really embedded into how bank employees do their jobs?

FCAadvancedtrainingAdvanced or more specific AML/CTF training courses on the market should address the particular risks posed by different areas of banking. Looking into trade based money laundering operations using examples and knowledge from people who have worked in trade financing first hand, not simply adding a few slides to a power point describing false invoicing would be a good start; but this is rarely the case.

It’s about the people, stupid

Global AML efforts are now hinged upon a risk based approach – the basic principle of applying most resources where the greatest risks lie. To do this, employees need to understand the risks – what they look like, where and when they can occur. The emphasis must be on engaging the learners.

“To combat financial crime and terrorist financing, the people who work with clients must be aware of the risks. Not just compliance and the firm’s financial intelligence unit, but front line business people in an institution.” Kim Manchester, a compliance veteran and CEO of ManchesterCF told Financial Crime Asia.

This rings true. The customer facing employees – whether private banking relationship managers or traders creating OTC derivatives – know their client well enough to offer them precisely the right product at the right time. They also should be able to know with the same precision when a deal does not add up. Compliance officers can erroneously believe that ML/TF is not an issue for some of the more sophisticated financial products. Let’s take derivatives as an example. Some compliance officers do not consider AML/CTF something that derivatives traders need to be concerned with and so they did not need training on this area.

This is a huge oversight which could end up costing a financial institution. Mis-priced derivatives contracts can be used as an instrument to launder money and to channel funds to bribe takers. If the traders who engineer these products are able to recognise and report unusual activity – such as a price that does not chime with the market – compliance training is hitting the mark. But if these traders are sitting through a course which spends only a fraction of the time looking at how financial criminals try to manipulate sophisticated products, they might never spot a suspicious transaction. AML/CTF training must reach far beyond the basic stages and into the specific business lines run by banks on the markets. Because this is where the real financial crime takes place.


Singapore: ‘Unusual trading’ prompts review of Singapore Exchange

The Monetary Authority of Singapore and the Singapore Exchange have drawn up plans to strengthen the securities market after shares in three companies unexpectedly plummeted on the same day last year.FCA - Singapore

In October last year, the shares of Blumont Group, Asiasons Capital, and LionGold Corporation fell significantly, with all three companies losing almost all their value overnight.

In its introduction to the consultation, the MAS said it conducted a review following the “unusual trading activities” in the three stocks and said it had also noted “increased volatility in certain segments of the market following the event”.

The MAS said, while the review, which it conducted jointly with the SGX, concluded the securities market remains sound, there is scope for improvement in three key areas: promoting orderly trading, improving the transparency of market intervention measures, and strengthening the new listings process and enforcement actions against listing rule breaches.

In order to achieve this, the MAS and SGX have proposed establishing an independent listings advisory committee, a listings disciplinary committee, and a listings appeals committee.

Lee Chuan Teck, assistant managing director, capital markets, MAS, said: “These changes have to be viewed in the context of a securities market that is fundamentally sound.

“A recent assessment by the International Monetary Fund affirmed that our securities market’s compliance with international standards is generally high, and Singapore’s regulations are among the best in the world. This consultation allows us to have a conversation with all stakeholders on how to make the market stronger and more mature. We will consider all views carefully before making any decision.”

‘Orderly trading’

With the aim of “promoting orderly trading”, the MAS and SGX have also proposed setting up a minimum-trading price for a stock, imposing collateral requirements on stock trading, and reporting short-sale positions.

Noting that low-priced securities are normally more prone to speculation and “possible” manipulation, the regulators said setting up a minimum trading price might curb the volatility.

Magnus Bocker, chief executive, SGX said: “This joint consultation and enhancements to SGX’s regulatory tools encompass structural and regulatory aspects crucial to a well-functioning securities market. Today’s world is fast-changing and we need to strengthen Singapore’s securities market to meet the expectations of investors and companies.”

The paper “Review of Securities Market Structure and Practices” is open for public comments until May 2.

SGX had said in January it will introduce circuit breakers in the securities market from February 24 as an additional market safeguard.

Click here to download a copy of the consultation


Source – International Adviser