Company boards may periodically complain about the cost of complying with regulations including anti-money laundering and preventing bribery and corruption. But as the old saying goes, if you think compliance is expensive, try the cost of non-compliance.
Westpac, an Australian bank, last year agreed pay a record A$1.3bn (£0.7bn; $0.9bn) fine for its breaches of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act).
The penalty is the highest civil penalty in Australian history, reflecting the seriousness of compliance failings by Westpac, said Australia's financial crime watchdog, Austrac.
Westpac apologised for failing to detect criminal actions by some customers of its “LitePay” payment service, which enabled customers to send payments of less than $3000 to various overseas countries. The payment platform has since been shut down.
Experts warn that banks are likely to face more multi-billion-dollar fines over the next few years, for breaching financial anti-money laundering and other financial crime rules.
Earlier this year, Peter Forwood, a financial crimes specialist at accounting firm PwC said that Austrac-regulated entities could face more billion-dollar fines.
“I couldn’t say whether it will land in 2021 but the pattern tends to be increasing fines … to ensure there is appropriate shock value associated with enforcement and those kinds of numbers certainly generate shock value,” he told the Australian Financial Review.
Fines could be for breaches of “know your customer” (KYC) rules he added.
Compliance is a growing challenge for financial services companies worldwide. In the past 10 years, the level of activity in financial-crimes compliance in financial services has expanded significantly, with regulators around the globe taking scores of enforcement actions and levying $36 billion in fines, according to an article last year by McKinsey & Company.
The cost of compliance for financial institutions is rising. According to research by LexisNexis in 2020, for financial institutions in Europe, Middle East and Africa, there was a double-digit increase in the cost of complying with regulations to counter financial crime.
The total cost of financial crime compliance in this region in 2020 was estimated at $117.5 billion, up 21% from the previous year, according to the LexisNexis research. Germany accounted for a higher portion of the total EMEA compliance cost followed by France and Italy, according to the research.
The survey of financial companies, including banks, insurers and investment firms, also found that annual compliance cost increases were less among those spent more on technology.
Whatever industry your business is in, just having a compliance program implemented is not enough. Companies must demonstrate to regulators the effectiveness of their programs and compliance management.
Company compliance requirements are getting more complicated and stringent by the year. Global businesses may have hundreds of compliance controls – including monitoring, training, company policies and internal audits – to track, and dozens of different national and international regulations and laws to comply with.
Many compliance departments use a follow-the-money approach. Where is money entering and leaving your organisation? Who are the people who can influence your contract? How does your company interact with your customer, and does it give them gifts of hospitality, which could put your business in breach of anti-bribery and corruption rules? Just buying a public official a meal could mean that your business breaches anti-bribery and corruption laws.
Tracking numerous external and internal controls on a spreadsheet is cumbersome and raises the risk that compliance risks will be missed. And that could be a costly mistake.
Technology can help.
ReadiNow’s compliance software solution can automate many of your compliance obligations. Our software creates a compliance framework to methodically document and record the objectives and improve the connection between external compliance requirements and internal control activities, such as training, monitoring and internal audits.
Organisations can set up alerts and “thresholds” in the software based on their own criteria for what could be a suspicious transaction including international fund transfers, large volumes of transactions, cashing travellers’ cheques in large volumes and a “suspicious matter report” in which you suspect that customer/activity may be linked to criminal activity.
ReadiNow lets compliance departments assign controls, accurately measuring the control effectiveness and check whether their organisation is meeting compliance objectives in real time.
It integrates with your other important IT systems, including finance and “know your customer” (KYC) to flag indicators of potential criminal and suspicious activity.
Our ReadiNow platform also connects to LexisNexis Regulatory Compliance software to further automate and refine compliance monitoring and alerts.
The LexisNexis integration helps organisations comply with anti-bribery and anti-corruption laws, by summarising their requirements and suggesting measures organisations can take to identify and minimise compliance risks.
Automating compliance procedures can’t replace the human judgement and experience of a veteran compliance executive. However, it can save businesses a lot of money and help them track an increasing number of internal controls and external anti-corruption, anti-money laundering and other regulations. As compliance departments know well, the cost of not doing something can far exceed the cost of doing something, including improving compliance technology.