Anti-Money Laundering Activities at Commercial Banks

In the previous article, we have already seen how commercial banks inadvertently help anti-social elements in laundering money.

We have also seen why commercial banks are preferred by anti-social elements when it comes to laundering money. We know that commercial banks have already put in place a lot of processes to stop this money laundering activity.

However, it can be said that the banks have had limited success with this endeavor. This is because of the several roadblocks and challenges that they are facing in the process.

In this article, we will have a closer look at the various anti-money laundering activities which are taking place at commercial banks in the present as well as how these activities are likely to change in the future as well.

Problems With Anti-Money Laundering

There anti-money laundering activities undertaken by commercial banks are not fully successful because there are several issues associated with it. Some of these issues have been listed below:

• Outdated Systems: Anti-money laundering is a complex activity. It needs all the data present at the bank to be in a centralized repository wherein tools with artificial intelligence try to detect patterns from within the data. However, in most cases, commercial banks do not have a centralized repository. Instead, all their data is scattered across different repositories. Also, most commercial banks do not have cutting-edge systems with artificial intelligence and machine learning capabilities. This is the reason why anti-money laundering activities are not very successful.

• Increased Compliance: Over the years, compliance related to anti-money laundering activities has increased drastically. This means that banks have to develop newer systems and hire more personnel in order to be compliant with the changing standards. All these activities lead to an increase in costs. However, commercial banks are facing competition from other commercial banks and even from fintech companies. Hence, there is a limitation to the amount of cost which can be passed on to the customers. In the end, a certain percentage of the cost needs to be borne by the company itself. It is for this reason that the increased compliance is negatively impacting the profitability of the banks.

• Inconvenience During Onboarding Entities: The increased compliance is not only negatively affecting the bank but it is also affecting the customers. Banks have to routinely get a wide variety of documents from corporate clients before they can open an account on their behalf. This is quite problematic because of the fact that the time taken to open an account or provide other facilities also increases. As a result, the overall service levels of a commercial bank are negatively impacted because of the inconvenience faced during onboarding.

• Lack of Skilled Personnel: The availability of skilled personnel is also quite a challenge for commercial banks. This is because personnel who work on anti-money laundering norms are quite skilled. They need to have knowledge of technology, finances as well as forensic accounting. Such personnel is hard to onboard, retain, and train. Commercial banks routinely deal with high attrition of such personnel. These personnel problems limit the success of the anti-money laundering activities done by the bank.

• The Emergence of New Payment Mediums: Over the years commercial banks have seen the emergence of new payment mediums. Many commercial banks also provide new payment mediums such as mobile wallets and digital wallets to their clients. Now, the problem is that commercial banks are yet to discover how these newer payment mediums are being misused for money laundering.

Future of Anti-Money Laundering

From the above points, it is quite clear that anti-money laundering activities need to be improved across the commercial banking system. The exact changes are likely to be high-tech and complicated. However, the changes are likely to follow these guidelines.

• Better Data Management Processes: Commercial banks have realized that the only way to make their anti-money laundering program more effective is to ensure better data management. Banks will have to ensure that the various repositories that they have all transfer their data to a centralized repository. Building such a channel where massive volumes of data will be held and analyzed is likely to be a very challenging task.

• Sharing of Data: It is also important to note that a single commercial bank cannot be very effective in stopping money laundering if they work in isolation. It is important for the entire banking system to function as one cohesive system instead of individual banks. It is likely that going forward banks will enable better sharing of data so that the latest information technology techniques can be used to identify suspicious activities.

• Network Analysis: Commercial banks need to understand that they are not dealing with one single organization but probably a network of rogue organizations. Hence, commercial banks not only need to analyze data about their customers but also for their customers, vendors, and business partners. The network analysis is important to identify the complex relationships that unpin money laundering-related transactions across the world.

The bottom line is that commercial banks are not fully equipped to deal with money laundering as of today. In the future, they will have to spend considerable resources in order to build a better system that can detect and prevent money laundering.