RETAIL BANKING | Contributed Content, Singapore
Henry Balani

Asian banks urged to build AML compliance programs


Asian banking operations face increasing exposure from regulators around the world to AML regulations – though the pressure locally is diverse in approaches and lacks enforcement. This is particularly challenging because regulators from different Asian countries have different approaches - principle-based versus rules-based - and maturity in their regulatory oversight.

Asia is a diverse area with a variety of jurisdictions and approaches making it a challenge to characterize and implement an AML program that spans Asian jurisdictions.

Principle-based regulation is founded on understanding risk exposure. It is not prescriptive in telling a bank what it specifically has to do to comply. The principle regulatory approach is focused on understanding the outcome and goal and it is up to the bank to implement measures to achieve that goal.

Key to achieving this goal is an understanding of risk exposure to money laundering and mitigating that risk. The way one bank would approach compliance can be very different from the way another bank approaches the same exposure to money laundering.

The United Kingdom’s Financial Services Authority pioneered the principle-based regulation approach. In Asia this is the regulatory approach that Hong Kong and Singapore are taking and represents the more mature end of AML regulatory oversight in Asia.

A rules-based regulatory system is the approach the United States has taken and is the approach that Japan, China, and most of Asia has implemented. It is a prescriptive approach that lists specific requirements to comply with the law and Asian banks have little to no room to deviate from the requirements that are spelled out for them.

Asian banks are challenged as they face both approaches when they operate in multiple countries across Asia. The inconsistencies in regulatory approaches alternating from principle- to rules-based AML oversight is the greatest challenge in managing AML compliance.

Asian banks trying to meet the needs of both approaches find that it adds complexity and costs to customer identification and monitoring programs. This challenge is magnified by the issue that Asian banks continue to struggle to have experienced AML compliance professionals to manage the intricacies of compliance – a shortage that needs to be addressed through education and development of the profession in the region.

Despite the difficulties in managing AML compliance to different regulatory approaches, AML compliance continues to become a critical issue for Asian banks. The broad reach of legislation such as the U.S. Foreign Account Tax Compliance Act (FACTA), the EU Fourth Money Laundering Directive, and even the current implications of the UK Bribery Act all put more pressure on Asian Banks to develop mature AML compliance programs that can address the intricacies of distributed and dynamic global business and banking.

Granted, there are mature parts of Asia in AML compliance. Most of Asia struggles under the weight of varying AML approaches that lack enforcement. Without enforcement it is hard to motivate a bank to comply.

The result has been that global financial services organizations have more established AML programs in the region than their local/regional competitors who have not faced the same levels of enforcement that global banks have in other parts of the world. The geographical and political diversity of Asia results in numerous approaches and conflicting requirements – making it all the more challenging for Asian banks to manage AML.

Asian banks cannot sit still – the pressure from AML compliance is bearing down on them from around the world. Local enforcement will heat up as increased pressure from other regions – predominantly North America and Europe - is put on Asia.

It is necessary for Asian banks to build AML compliance programs that are comparable to their global bank competitors to address the growing demands of dynamic and distributed business that the region serves.

The views expressed in this column are the author's own and do not necessarily reflect this publication's view, and this article is not edited by Asian Banking & Finance. The author was not remunerated for this article.

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Henry Balani

Henry Balani

Henry Balani is a Managing Director in Accuity. He is responsible for managing the Compliance Group that includes Product Management, Professional Services and Technical Support related to all Compliance Risk solutions. He provides overall direction, leadership and P&L responsibilities for the Group. Prior to joining Accuity, Mr. Balani was managing consulting practices with some of the largest professionalservices organisations, including Accenture and IBM.

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