Almost half of financial firms have expressed concerns that current anti-money laundering (AML) regulations lack clarity and fail to address many practical aspects of modern AML operations. A recently released report highlights these apprehensions, with particular emphasis on banks and their worries about both current and forthcoming AML regulations.
Despite these concerns, there is optimism within the European Union, where new AML regulations are set to be rolled out in the coming years. The report suggests that these new measures will likely alleviate some of the existing issues. The first steps of these changes are set to be put in motion after the European Parliament approved robust legislations to combat money laundering.
Financial Firms Raise Concerns: Key Insights
The findings are part of PwC’s ‘AML Survey 2024: Spotlight on Effectiveness,’ which encompasses data from hundreds of financial institutions across 40 countries in Europe, the Middle East, and Africa (EMEA). The survey examines how banks, asset managers, and payment institutions are managing AML risks, their views on the regulatory landscape, and efforts to future-proof the financial system.
According to the survey, financial firms face several significant challenges:
– Lack of Regulatory Uniformity: This is the most common concern, cited by nearly one-fifth of respondents. The inconsistency across jurisdictions and industries creates ambiguity, complicating the process of forming relationships and conducting transactions.
– Finding Skilled AML Staff: The shortage of experienced personnel is a major hurdle for many institutions.
– Data Management: Efficiently handling large volumes of data remains a critical challenge.
– Updating KYC Documentation: Keeping Know Your Customer (KYC) documents up to date is a persistent issue.
– Automating Processes: Integrating automation into AML processes is seen as essential but difficult.
– Operational Costs: There has been a 14% increase in operational costs over the past two years, adding to the financial burden on firms.
Drivers of AML Investment
The primary motivation behind AML investments is to enhance the effectiveness of compliance controls, with 36% of respondents identifying this as a key driver. Transaction monitoring has emerged as the top priority within AML topics.
AI adoption in AML operations is being considered across all regions, with the Middle East (93%), Africa (93%), and the Nordics (94%) showing the highest levels of enthusiasm. Transaction monitoring (79%) and screening (59%) are the primary AML functions for which AI is being utilised.
The Importance of Skilled Staff
Despite the growing focus on digital tools, the survey reveals that skilled staff are viewed as the most critical factor for effective AML compliance. For 35% of respondents, the lack of skilled staff is hindering the implementation of digital tools that could improve the detection of suspicious activities. Without a strong foundation, the introduction of new digital tools, including AI, will not yield the desired improvements in effectiveness and efficiency.
Confidence in Transaction Monitoring
While 63% of respondents are fully confident in their transaction monitoring approaches, 55% believe that the maturity of their systems hampers the implementation of new technologies. Over half of the respondents (55%) plan to allocate more than 10% of their AML budgets to digital tools. Emerging markets in the Middle East (96%) and Africa (86%) are more likely to make significant investments in digital tools compared to established financial centres. In contrast, 13% of respondents in the Benelux region have no plans to invest in digital tools, the highest percentage among all regions studied.
Expert Insights on AML Governance
At the launch of the report, Marilin Pikaro, Director of the Innovation, Conduct and Consumers Department at the European Banking Authority (EBA), emphasised the importance of sound AML/CFT governance arrangements. She highlighted the need for appropriate risk assessment practices, staff awareness, and timely reporting processes to prevent and combat money laundering and terrorist financing.
“The European Banking Authority’s role as defined by its legal mandate is to lead, coordinate and monitor the EU financial sector’s fight against ML/TF across the EU,” Pikaro stated.
Imran Farooqi, EMEA Anti-Financial Crime Leader at PwC United Kingdom, remarked, “AML frameworks, policies, and actions will be a cornerstone of any financial centre that wishes to be seen as a trusted financial hub. Regulatory frameworks have matured considerably over the last decade; however, criminals have also adapted quickly.”
Michael Weis, Anti-Financial Crime Leader at PwC Luxembourg, noted the mixed sentiment within the EU financial sector regarding regulatory clarity and effectiveness. “While just over half of firms see current regulations as clear enough, scepticism remains about the practicalities of implementation. Despite this, we welcome today the European Parliament’s vote on the EU’s AML package, which will help create a more harmonised regulatory environment and address some of the operational challenges faced by firms.”
Conclusion
The PwC AML Survey 2024 highlights the significant challenges and concerns faced by financial firms in the EMEA region regarding AML regulations. While there is a push towards digital solutions and AI to enhance AML effectiveness, the importance of skilled staff and the need for regulatory clarity remain paramount. The upcoming AML package in the EU is anticipated to address many of these issues, paving the way for a more harmonised and efficient approach to combating financial crime.
