Evolving Stringent Regulatory Requirements

and How Technology Solutions can Assist FI's To

Meet These Expectation

EVOLUTION OF COMPLIANCE

• Since the late 1980’s, organizations had stated to emphasize on the requirements of sound Compliance

• Formation of Regulatory Bodies

• Financial Crisis of 1997

• 9/11/2001

• Financial Crisis 2008

FATF – FINANCIAL ACTION TASK FORCE

• Established in 1989

• To set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system

• Policy Making body

• Revision of Recommendations in 1996, 2001, 2003 and recently in 2012

OFAC – OFFICE OF FOREIGN ASSETS CONTROL

• Enforcement of Economic and Trade Sanctions based on US Foreign policy and National Security objectives

• Sanctions are based on United Nations and other International mandates

• Authority by specific Legislations to impose controls on transactions and freeze assets under US jurisdiction

• Close cooperation with Allied governments

UN – UNITED NATIONS

• Founded in 1945 after World War II

• Unique International character and the powers vested in its founding Charter means the Organization can take action on a wide range of issues

• Sanctioning Body against Individuals, Entities and Countries subjected to the relevant measures Imposed by the Security Council and all Member States

• Objectives are actions and measures to maintain and restore peace and security

EU – EUROPEAN UNION

• Originally initiated back in the 1950’s but actual birth of the EU in 2007

• Operates through Independent Institutions by Member States

• Sanctions and restrictive measures are frequently imposed by the EU

• Objective of Sanctions are to bring about change in activities and policies

AML TERMINOLOGY

What is Money Laundering?

Process by which illegally obtained funds are given the appearance of having been legitimately obtained

Austrac

AML STAGES

1 Placement

2 Layering

3 Integration

After the Layering process, the money is then reintroduced into the financial / business system

Introducing illegal profits into the financial system

Conversion / movement to separate the illicit proceeds from their source to disguise the audit trial and provide anonymity

AML RECOMMENDATIONS & REQUIREMENTS

Identification of Suspicious Transactions • Reactivation of Dormant Accounts

• Large / Unusual / Frequent cash Deposits or Withdrawals

• Activities Inconsistent with Customer Profile

• High Risk Customers after applying Risk Based Analysis

AML RECOMMENDATIONS & REQUIREMENTS

Know Your Customers (KYC) • Understand the Background of the Customer

• Profession / Nature of business of Customer

• Source of Funds

• Area of Residence

AML RECOMMENDATIONS & REQUIREMENTS

Customer Due Diligence (CDD) • Obtaining Satisfactory evidence of Customer

• Establish Banking Records of Customer

• Verify the Identity of the Customer

• Any Legal evidence of Customer

CHALLENGES FACING FI’S

• Compliance with complex and evolving global regulatory

• Sophistication and professionalism of today’s criminals

• Managing Multiple alerts from Multiple Systems

• No Consolidated view of customer and transactional activities

• Not flexible solutions to face future regulatory requirements

• Managing Reputational Risk

BENEFITS OF HAVING AN AML SYSTEM

Systems and Integration • Ability to integrate with multiple Banking systems

• Consolidate information to provide a single view of customers

• Provide a holistic view through out the investigation process

• Generating multiple alerts based on aggregation of data

BENEFITS OF HAVING AN AML SYSTEM

Rule and Risk Based Alerts • Parameterized platform able to cope with changing

Regulatory requirements

• Able to link and manage all potential and actual transactions from a Risk Based perspective

• Detection of new and previously used modus of operandi

• Configurable and scalable platform

BENEFITS OF HAVING AN AML SYSTEM

Transaction Monitoring • Faster decision making and improved investigator efficiency

• Fully featured case management solution tailored to suit

every organization

• Linked networks of entities, for example, individuals, organisations, addresses, phones, email addresses and transactions

• Reduced false positives

BENEFITS OF HAVING AN AML SYSTEM

Reporting • Enterprise Level Reporting capability

• Real Time dashboard view of KPI’s across different products

and systems

• Automates the creation, population of regulatory reports

• Analytical capability with data analysis and prioritisation • Watchlist search and management

CASE STUDY 1

Purchase assets with overdraft &

term loans

Repaid loans within a short period of time

Place with bank for credit

facilities

Fixed Deposit A/C

Transfer Multiple A/Cs (including A/Cs maintained by

relatives)

Unit Trust

Investment

Investment Portfolios

IL Policies

Layering

Mr. Y’s Bank A/C (Government

Official)

Cash deposits

Various Sources - Illegal gambling

operators, Prostitution-

related biz, etc

Placement

In his or his family members’ names

Integration

CASE STUDY 2

Payments for his gaming bets

Withdrawn by Mr. Z

Transfer to Layering

Placement #2

Mr. Z (Bank Branch

Manager)

Customers’ fixed deposits

Liquidate customers’

fixed deposits

5 customers’ bank accounts

Bank Accounts Mr. L Mr. N Mr. T

Other A/Cs in other banks

Involved in

Illegal gambling activities

Transfer to

Placement #1

REALITY OF AML

Country

Education

Industry

Position

Gender

Organization

Age group

CONSEQUENCES OF NON COMPLIANCE

HSBC (2012) - $1.92B

However, losses are beyond financial ….

Standard Chartered (2012) - $667M

ING (2012) - $619M

Credit Suisse - $536M

RBS - $500M

Barclays - $298M

TESS CREDENTIAL

• Recipient of the International Business Review 2009 CEO Award under the International Business Review Magazine.

• Recipient of the “Product of the Year” Award for our CORAL iSEM™ Solution under the SMI & SME Worldwide Network Malaysia during the 4th Business Award of the Year 2010.

• Finalist under the MSC-APICTA 2010, for the “Best Financial Applications” Award Category for our CORAL iSEM™ Solution.

• Recipient of R&D Grant from MDEC to conduct a research and development on anti-money laundering solution in year 2009.

SUMMARY

• Heavily Regulated and Sanctioned globally

• Effective Compliance policies

• Fully compliant with FIU and Regulators Requirements

• Invest in a Reputable AML System

• Non Compliance Does Not Pay

CONTACT DETAILS

Contact : Mr. Satish S.S. Vice President - Financial Services Industry Consultancy Address : B-2-15, 8 Avenue Business Centre Jalan Sg. Jernih 8/1 46050 Petaling Jaya Selangor Darul Ehsan Malaysia Tel : +603-7954 1111 Fax : +603-7954 1010 Mobile : +6016-233 7997 Email : satish@tessinternational.com

THANK YOU