Banks Cry Out for Better Enforcement, Not More Regulation

The global financial system is struggling to combat anti-money laundering (AML) and combating the financing of terrorism (CFT). Despite this, banks are calling for better enforcement rather than more regulation.

The Current System: Unsustainable

According to a recent survey, over 60% of banks believe that there is enough or too much regulation in place, but not enough effective enforcement. The current system, with its increasing costs, wasted effort, and ineffective results, is unsustainable in the long-term without significant change within the banking sector.

Consequences of Ineffective Enforcement

Without improvement, banks may be forced to take drastic measures to comply with AML regulations, including de-risking and reducing business relationships. This could have far-reaching consequences for the global economy.

Strain on Banks: Impact on Customer Service

The strain on banks is already affecting customer service levels, with customers facing lengthy on-boarding experiences and assets being frozen inappropriately due to incorrect assumptions. “The customer is being completely forgotten in all of this,” says a banker. “We’ve now got customers having quite horrendous on-boarding experiences and having assets frozen inappropriately just because maybe a team’s made some incorrect assumptions.”

Alternative Providers Emerging

Meanwhile, alternative providers are emerging from both within the established banking sector and outside it. Russia has already expressed enthusiasm for developing an alternative to the SWIFT payments system.

Systemic Risk

The combination of the strain on banks, moves to de-risk, and increasingly ambitious sanctions regimes creates a potential systemic risk. “What if similar sanctions to those imposed on Russia are applied more widely, perhaps across the Middle East and Africa to combat Islamic State?” asks one bank professional. “When they apply it to other countries and it’s happening across the board, it is going to damage the whole international payment network. It will grind certain things to a halt.”

Key Emerging Financial Crime Threats

The real risk is that no one is able to identify the key emerging financial crime threats because those with the expertise to do so are too busy trying to stay compliant.

FCA Acknowledges Regulatory Burden

The Financial Conduct Authority (FCA) has acknowledged the growing regulatory burden and its potential impact on compliance professionals, saying that it “recognizes the challenges faced by firms in implementing these requirements and is committed to supporting them in their efforts.”

Addressing Root Causes of Financial Crime

However, some experts argue that more needs to be done to address the root causes of financial crime rather than just imposing more regulations. “We’re supposed to be anti-money laundering. We are not anti-money laundering; we are [trying to] save ourselves from the regulator,” says a senior bank official.

The Future: Balancing Compliance and Customer Service

As the industry continues to grapple with these challenges, it remains to be seen whether banks will be able to find a way to balance compliance requirements with customer service levels and maintain their competitiveness in the market.