accuity.com

Identity Matching - Trends and Innovations

Rahul Oberai – Regional Director

Bangladesh AML Summit 2017

Agenda

Changing Compliance Regime

Challenges faced

Identity matching best practices

Trade finance perspective

Key take aways

2

Accuity focuses on the needs of banks, financial institutions and corporations to ensure efficient AML screening while minimizing regulatory compliance risks

Offices in

Strategic relationships

95% of the

world’s 500 largest banks

175 years

Automated Trade Finance

Screening

#AccuityTradeFinance

Rise in regional conflicts

Financial Warfare

$2TnCongressional report “The Cost of Iraq, Afghanistan, and

Other Global War on Terror Operations”

Rising Complexities

Compliance Is Expensive, but Noncompliance Can Cost Even More

Banks pay out £166bn over six years along with indictments and imprisonment

New targets

New threats

New domains

Complexity

Localized conflicts

Compliance costs

Risk policy requirements

...

RE

GU

LA

TIO

NRising Cost – De-Risk?

Per Accuity research, while the total number of banks globally have increased, the number of correspondent relations have gone down

0

50000

100000

150000

200000

250000

300000

350000

400000

41000

42000

43000

44000

45000

46000

47000

2013 2014 2015 2016

Ins

titu

tio

ns

Total No. Institutions vs. Total Corr Relationships

Total No. Institutions Total Corr Relationships

Institutions include Depository Financial Institution, Commercial Bank, Savings Bank, Savings & Loan Association, Credit Union, Industrial

Bank, Private Bank, Thrift & Loan, Cooperative Bank, Deposit Taking Institution, Retail Bank, Wholesale Bank, Building Society

Source: Accuity Global Payments File. 2016 data as of Aug 26 2016

Asia Pacific is affected by this trend, with a significant drop in correspondent relationships

0

5000

10000

15000

20000

25000

30000

7800

8000

8200

8400

8600

8800

9000

2013 2014 2015 2016

Inst

itu

tio

ns

Asia/Pac No. Institutions vs. Corr Relationships

No. Banks Corr Relationships (Beneficiary)

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Identity Matching Developments

Review Management

KYC

On-boarding

Customer

AccountsPayment’s SWIFT

& NRBTrade Finance

Private

List

Manager

Sanctions

List

PEPs

Adverse

Media

EDD/CTC

Anti-social

Forces

Private Lists

Dual-use

Goods

Vessels

Sea Ports

Scrubbing Engine (Rules + Algorithm)

Policy – Process - Frequency

AML Screening considerations

• Single warehouse of reference data –

Adding datasets centrally

• From lookup to data push – Pro-active

Correspondent Banking DD

• Outsource research to save – Enhanced

Data

• Query specific datasets – Reducing False

Positives

Current Developments - Data

• Automated Screening

• API’s – Facilitate Single View of Risk

• Traceability

Current Developments - Process

• Independent Review – Ask an reputable company/auditor to

review your current process and policy for KYC screening

• Training – Ensure the management and teams focused on KYC

screening understand the importance of this function

• Filtering solutions – There are a number of leading local and

international vendors who provide good software that will

automate KYC and account screening for the banks

• Sanction Data – The international sanction lists such as UN,

EU, OFAC are changing all the time, make sure you have the

correct mechanism in place to have the latest sanction data

• Good Customer Data – You need manage quality customer data

to have an effective KYC program. Garbage in = Garbage out

Some important considerations

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Identity Matching for Trade Finance

A global standard is emerging in identifying trade-based money laundering risks… but we’re not fully evolved yet

FATF

Trade-based Money

Laundering report

2006

The Wolfsberg

Group Trade Finance Principles

2009

EAG WG International TBML report

Dec.2009

US FINCEN SAR/TBML

Advisory

Feb. 2010

APG TBML Typologies

Report

Jul. 2012

UK FCA Thematic Review:

control of financial

crime risks in trade financeJul. 2013

JMLSG Guidance

Trade Finance

Nov. 2014

MAS

AML CFT Controls in

Trade Finance

Oct. 2015

HKAB

Guidance paper on

TBML

Feb. 2016

Dual-use Goods include a wide range of

goods that are designed for commercial

applications but can also have military

applications or potentially be used as

precursors or components of Weapons

of Mass Destruction

Carbon Fiber

Shampoo

Bicycles

Instant Coffee

Mustard Gas

Rocket Fuselage

Biological Weapon

Lyophilizer

Triethanolamine

TEA

“We are being asked by our auditors to explain the combination of chemicals to create explosive devices. We are just bankers, not chemists!”

“We found that banks hadgenerally developed effectivecontrols to ensure they werenot dealing with sanctionedindividuals and entities.However, policies, proceduresand controls to countermoney laundering risk weregenerally weak and mostbanks had inadequatesystems and controls overdual-use goods.”

Banks’ control of financialcrime in trade finance

“Banks should…determine

whether the underlying

goods financed are

embargoed goods and

there should be special

attention paid to dual-use

goods”

Guidance on anti-money

laundering and

countering the financing

of terrorism controls in

trade finance and

correspondent banking

Your correspondent partners in emerging markets are coming under greater scrutiny on AML controls focused on trade finance

2

“While this is a complex area,

AIs should nevertheless have

measures in place, as part of

their risk-based systems and

controls that can assist in the

identification and escalation

(for further review) of dual-

use goods in trade

transactions, taking into

account other relevant red

flags in

a transaction.”

Guidance Paper on

Combating Trade-based

Money Laundering

Retail Banking

Corporate Banking

Trade Finance

Investment Banking

Private Banking

FIDepartment

• The KYC requirements in these area’s are very similar, with the all clients having to be screened against sanction & PEP lists

• All beneficial owners are required to be identified, with Corporate Banking senior management must be identified and screened

• In Private Banking banks typically conduct EDD screening, as many of these clients are typically High Net Worth Individuals and can pose a greater risk

• Trade finance are required to check all parties involved in the transaction, this extends to identifying the vessel, the route of the vessel, the banks, companies and all persons

• As part of the Due Diligence Process, the Head of FI is required to screen all correspondent banks against sanctions and PEP lists, this is extended to the senior management of this group

Screening Areas for a Bank – KYX (X = Everyone!)

Key takeaways:

• It will get complicated!

• There is a cost of non compliance that extends

beyond just a monetary value

• De-risking is something that has a significant

economic impact to a country

• Leveraging on technology is the only option to

find a balance between rising compliance costs

and margins

Thank You!

Rahul Oberai

Regional Director - APAC south

rahul.oberai@accuity.comhttps://accuity.com/accuity-insights-blog/