Anti-money laundering has climbed to an all-time high on the radar screen of senior management, according to KPMG International's 2014 AML survey.

The consulting firm said the 88 percent of respondents who said AML issues are at the top of their agenda was the high mark in its decade of conducting similar surveys, and a sharp increase from the 62 percent in 2011 who listed AML as a top priority. The survey, conducted in November, was based on responses from 317 AML and compliance professionals in top banks around the world, and KPMG AML contacts in 40 countries. A little more than a quarter (27 percent) hailed from Western Europe, with another 11 percent from Russia, Central or Eastern Europe.

“Anti-money laundering has never been higher on senior management's agenda, with regulatory fines now running into billions of dollars and regulatory action becoming genuinely license threatening,” Brian Dilley, global head of KPMG's Anti Money Laundering Practice, said in a statement.  He added that financial institutions are making significant changes to respond to global AML regulatory changes, including the Financial Action Task Force's recommendations, the U.S. Foreign Account Tax Compliance Act, and the Fourth European Money Laundering Directive.

“These initiatives have quickly changed the AML scene from a standalone function under compliance, to an increasingly complex and overarching approach, cutting across legal, risk, operations, and tax,” Dilley said.

Dilley also noted in the report that while the number of AML fines may have declined in certain regions, the amount of those fines has increased across the board. An overwhelming majority (98 percent) said AML issues are discussed by the board of directors, which Dilley attributed to “increasing and evolving regulatory pressures” with the specter of individual prosecutions lurking in some jurisdictions.

A majority (84 percent) of those polled said they consider money laundering a “high risk area” within their business. When broken down by region, 78 percent of respondents in Western Europe considered money laundering a high risk area, while 75 percent in Russia, Central and Eastern Europe said the same. Those results were more dramatic in Central and South America, where 100 percent of respondents said money laundering presented a high risk area for them.

Respondents cited the pace of new or changing regulations as a major challenge facing financial services firms, with most planning to invest more to keep up. Those polled said their costs are rising at an average rate of 53 percent, compared to a predicted 40 percent increase in 2011. In 2011, the last time KPMG conducted the survey, 8 percent predicted their AML costs would rise by more than 50 percent. Those predictions fell short of the mark, as 22 percent of the survey respondents actually experienced a 50 percent increase in AML costs in the past three years.

The top three expenditures in AML budgets are transaction monitoring systems, Know Your Customer reviews and maintenance, and recruitment, KPMG said. Dilley said accurate cost forecasting remains weak, and predicted senior management will continue to underestimate AML expenditures. Transaction monitoring systems did not get high satisfaction ratings, although Western Europe came in with the highest satisfaction rating of 3.90 out of 5. The average globally was 3.42 out of 5, a slight drop from 2011.

Identifying complex ownership structures was the biggest KYC challenge cited by respondents in both Western Europe and the Russia, Central and Eastern Europe groupings.

Politically exposed persons (PEPs) are getting more attention from senior management, according to the survey. Eighty-two percent of those surveyed said senior management is involved in the sign-off process for PEPs. Know Your Customer (KYC) is another key focus, with 70 percent of respondents reporting that they had received a visit from regulators regarding that issue.

Outsourcing and off-shoring of AML functions are deemed a growing trend, but respondents still worry about lack of control and oversight, the survey found. Twenty-seven percent of those in Western Europe cited the trend, compared to 24 percent in Russia, Central and Eastern Europe.

Applying globally consistent AML procedures across all branches and businesses is another growing challenge cited by respondents, and some questioned whether it is possible to run a fully compliant AML program given the volume of regulatory changes. Sixty-three percent overall said additional regulatory guidance would help their business, with Western Europe indicating the greatest desire for added guidance at 68 percent.

Dilley noted that regulatory visits are still “striking fear into the hearts of AML professionals.”

“Despite annual expenditure that is likely to exceed $10 billion in the next couple of years, institutions continue to fall foul of regulatory expectations, which seem to change more regularly than in the past,” Dilley said. “Minimum compliance with regulatory obligations is no longer enough to stay out of trouble, when you strive to meet a higher standard, but fail.”

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