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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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
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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:
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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
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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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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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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 Customers Business or Profile Changes in Bank to Bank Transactions Customer Who Provides Insufficient or Suspicious Information
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SUSPICIOUS ACTIVITY INDICATORS

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[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
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criminal activity, or are related / linked / used for terrorist financing, 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 follow up 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 Banks 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 Organisations employees can directly and / or via their designated BCO / DCO contact the AMLCO for guidance on any compliance query or reporting of
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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 Banks 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
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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
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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
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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 banks various compliance risks
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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
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Banking &amp; Insurance Industry Expectations

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Banking &amp; Insurance Industry Expectations

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1/5/2014