Banking & Insurance Industry Expectations

1/5/2014 Banking & Insurance Industry Expectations

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FINANCIAL SECTOR TALENT ENRICHMENT PROGRAMME

COMPLIANCE IN BANKING

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http://www.ibbm.org.my/pdf/COMPLIANCE%20IN%20BANKING.pdf



COMPLIANCE IN BANKING

➢AMLA COMPLIANCE

➢BANKING COMPLIANCE

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AMLA COMPLIANCE

ANTI MONEY LAUNDERING AND COUNTER FINANCING

OF TERRORISM

Malaysian Anti Money Laundering Act 2001 /

Malaysian Anti-Money Laundering (Amendment) Act

2003



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AMLA COMPLIANCE

Note:

•Key Provisions Under The Act

•Concept & Fundamentals of Money Laundering

[Discussed In Phase 1 Training]

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AMLA COMPLIANCE

Some Operational Issues



Key Is To:

•Implementing a robust Know Your Customer (KYC)

Policy

•Always Have An “Enquirying Mind”

Avoid:

Lapses!

Negligence!

Breaches!

The Wrath of the Law!

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AMLA COMPLIANCE

A Recap: BNM Guidelines

•UPW/GP1: Standard Guidelines on Anti-Money

Laundering and Counter Financing of Terrorism

(AML/CFT)

•UPW/GP1[1]: Sectoral Guidelines 1 on AML/CFT

[Guidelines issued with effect from Nov 2006]



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AMLA COMPLIANCE

Purpose & Spirit of new BNM Guidelines:

• To address the requirements that must be complied

by FIs under AMLA to combat money laundering

and financing of terrorism activities

•Guidelines are drawn up per AMLA and Financial

Action Task Force (FATF)’s 40 + 9

recommendations

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AMLA COMPLIANCE

BNM Guidelines - Salient Features:



➢ Customer Acceptance Policy

- to address the establishment of customer

relationship

- risk and customer profiling procedures

→ documentary evidence is key!

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AMLA COMPLIANCE

➢Customer Due Diligence Process

- Objective is to obtain satisfactory

evidence and records of identity and

legal existence of all potential

customers

- Note the various documentation

required for different customers -

individuals, businesses and

corporations, etc

- Be mindful of cases involving

Legal Arrangements, Beneficial

Ownership and Control

and Intermediaries



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AMLA COMPLIANCE

➢Customer Due Diligence Process (contd.)

- Non-face-to-face customer

relationship

- Foreign Politically Exposed

Persons (PEPs)

- Higher Risk Customers (e.g. HNWI,

NRI, high risk locations, countries and

jurisdictions)

Applies also to existing customers: customer /

transaction profiling process

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AMLA COMPLIANCE

➢Record Keeping

- Retention Period: 6 years minimum

- Audit Trail: critical where tracing is

required by the authorities



➢On-Going Monitoring

- Looking out for any unusual circumstances and

irregularities

- Adequate MIS

- Internal criteria setting: spotting “red flags”

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AMLA COMPLIANCE

➢Suspicious Transaction Reporting (STR)

- When to submit a STR?→ You suspect or have reason

to suspect that:

i. the

transaction/attempted transaction

involves proceeds from an

unlawful activity or

ii. the customer is

involved in money

laundering or financing of

terrorism

- STR reporting mechanism→ STR submitted to FIU / BNM

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AMLA COMPLIANCE

➢Combating Financing of Terrorism

•Name matching process against UN Consolidated

List and such orders as issued by Minister of

Internal Security

•Same reporting methodology as STR

•To ensure information in database is updated and

relevant

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AMLA COMPLIANCE

➢ AML/CFT Compliance Programme

1. To develop, formulate and implement policies,

procedures and internal controls for AML/CFT

2. Mandated not just by Guidelines but also by

law


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3. Includes staff training and awareness

programmes

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AMLA COMPLIANCE

Know Your Customer Policy

Objectives

•To accept only legal and bona fide

customers

•To properly identify customers to

understand antecedent risks

•To monitor customers accounts &

transactions

•To implement processes to effectively

manage the risks

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AMLA COMPLIANCE


3 critical criteria to satisfy KYC:

•Minimum account opening policies, procedures

& processes

•Identification of accounts that are classified as

high risk

•Monitoring of customers’ transactions

Note other AML tools & mechanisms:

Policies & procedures / Internal controls / Monitoring and

reporting of suspicious transactions / Training

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AMLA COMPLIANCE


✓Whole focus of KYC is to detect and deter suspicious

transactions and activities

✓KYC is the most effective tool to combat money

laundering!



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SUSPICIOUS ACTIVITY INDICATORS

[Red Flags]

❑Unusual Customer Activities

❑Activities Inconsistent with the Customer’s

Business or Profile

❑Changes in Bank to Bank Transactions

❑Customer Who Provides Insufficient or

Suspicious Information

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SUSPICIOUS ACTIVITY INDICATORS



[Red Flags]

❑Certain Funds Transfer Activities

❑Activities that may indicate Terrorists Financing

❑Efforts to Avoid Reporting or Record-keeping

Requirements

❑Bank Employees and Agents

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RISK CATEGORIES

❑High Risk Jurisdictions

[Risk scores of countries are derived from

published Reports/Indices: FATF, TI]

❑High Risk Businesses

❑High Risk Products & Services

[readily converting cash into a Monetary

Instrument ; any product or service facilitating

rapid value movement]



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Risk Assessment Framework

✓Profiling your customers

✓Risk scoring

✓High risk accounts / transactions

✓Other risk categories

✓High net worth individuals

✓Suspicious activity / transaction reports

✓Tracking, monitoring and reporting

✓Politically Exposed Persons

→ Self Assessment Process

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AML COMPLIANCE REPORTING

➢Once knowledge on suspicion or reasonable suspicion is

obtained suspecting that funds are the proceeds of a



criminal activity, or are related / linked / used for terroristfinancing,

➢Staff should promptly report the suspicious activity to the

designated Branch/Department Compliance Officer(BCO/DCO) for onward possible reporting, if necessary,to the Head Office AML Compliance Officer (AMLCO) .

➢Information on a strictly need to know basis. A customer

SAR file for the reporting should be maintained for followup and monitoring.

➢Where necessary, and upon evaluation of the case, AMLCO

will raise STR to FIU/BNM

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ROLE OF AML COMPLIANCE OFFICER

➢The Bank’s designated principal liaison officer and will

cooperate and work with the regulators and other

relevant enforcement agencies in compliance with AML /

CFT measures.

➢Keep abreast of regulatory developments and advise the

business accordingly.

➢To formulate and align organization-wide internal

policies on AML / CFT framework that will be

communicated to all staff, particularly Branch /

Department Compliance Officers to ensure compliance

with BNM framework and laws/ regulations governing

AML.



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➢Monitors adherence to and ensure adequacy of money

laundering deterrence procedures, including the AML

Risk Matrix.

➢Remind and assist line management to ensure

compliance with all relevant anti-money laundering

regulations.

➢Shall have timely access to customer identification data

and other customer due diligence information,

transaction records, and other relevant information to

enable efficient collaboration / assistance to Regulator /

Enforcement Agencies.

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➢Will provide relevant content / training materials.

➢The Organisation’s employees can directly and / or

via their designated BCO / DCO contact the AMLCO

for guidance on any compliance query or reporting of



large or suspicious / illegal activity encountered

during the course of their work.

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BANKING COMPLIANCE

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BANKING COMPLIANCE

Introduction

The Compliance function oversees and monitors a

Bank’s compliance with laws, regulations, policies and

controls.

But….

Compliance is the responsibility of all employees!

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BANKING COMPLIANCE

Definition*

Compliance risk is the risk of legal or regulatory

sanctions, material financial loss, or loss to

reputation a bank may suffer as a result of its



failure to comply with laws, regulations, rules,related self-regulatory organization standards

and codes of conduct applicable to its banking

activities

* Per Bank for International Settlement

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BANKING COMPLIANCE

Strategy

•To enable the measurement of compliance risks as well

as to ensure effective management

•Based on identified risks, compliance tools are

developed and implemented

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BANKING COMPLIANCE

How is the Strategy attained?

•Ensuring compliance with the requisite

standards

•Identify, assess, resolve and escalate

compliance breaches and failures

•Jealously guard the bank against reputational

risk and manage the risk

•Entrenching a sound compliance culture

across the bank

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BANKING COMPLIANCE

Objective

To provide the reasonable assurance to management

that all activities controls in the bank are functioning

effectively and efficiently



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BANKING COMPLIANCE

Why the need for Compliance?

•To safeguard the Bank against financial losses and

loss of reputation

•Helps meet expectations and demands of

shareholders, customers as well to withstand

regulatory scrutiny

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BANKING COMPLIANCE

Background

•In tandem with international best banking practices

•Aligned to the principles as introduced with the Bank

for International Settlement (paper titled ‘Compliance

and the Compliance Function in Banks ‘- 2005)

•Recent trends per compliance breaches that have been

increasing both in frequency and magnitude

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BANKING COMPLIANCE

The Compliance Framework

To establish and articulate:

•The roles and responsibilities of designated

employees

•The authority levels, governance structure and control

processes to manage compliance activities



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BANKING COMPLIANCE

The Compliance Framework

•The depth and scope of compliance activities in

the bank

•A robust Compliance policy and policy regime

•The application and implementation of compliance

enablers, tools and processes

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BANKING COMPLIANCE



Compliance & Governance

Articulates similar values and principles as proclaimed in

the Code of Ethics / Code of Conduct as well as

incorporating the key elements include honesty, trust and

integrity, openness, performance orientation,

responsibility and accountability, mutual respect, and

commitment to the organization.

[Refer also to training session on ‘Corporate

Governance]

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BANKING COMPLIANCE

Compliance & Governance

The Compliance function will also oversee key functions

within its structure that are similarly aligned with the

certain functional lines of a bank e.g. Credit, Treasury,

Operations, etc



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BANKING COMPLIANCE

Interdependencies

Due to different responsibility levels operating around a

bank in the realm of risks and controls,

interdependencies exit with the following:

•Risk Management

•Legal & Regulatory

•Audit

•All business and support units

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BANKING COMPLIANCE

Some Compliance Tools & Enablers



•Procedural and process reviews

•On-site inspection and surveillance

•Self Assessment Process (risk based)

•Training

•Incident Management Reporting

•Credit reviews (post approval)

•Credit monitoring

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BANKING COMPLIANCE

Some Compliance Tools & Enablers

•Treasury Limits Monitoring

•Regulatory Monitoring

•Audit reports

•Ongoing Compliance monitoring and checking



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BANKING COMPLIANCE

Reporting & Escalation Process

All functional units – business or support – that are entrusted

with compliance responsibilities are to collaborate and

coordinate with the Compliance function to escalate issues and

incidents at the appropriate level and forum. The aim is to enable

timely and effective resolution.

Reporting/escalations may, where appropriate, be made to:

•Board of Directors

•Senior Management

•Regulatory / Enforcement Authorities

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BANKING COMPLIANCE

Roles & Responsibilities: Compliance Officer

•To identify and manage, with his team, the bank’s

various compliance risks



•To manage and oversee the reporting and escalation

process

•Liaison person with authorities and enforcement

agencies

•Developing appropriate Compliance policies and

procedures

•To assist in Compliance training

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Thank you

Banking & Insurance Industry Expectations

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