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Nancy Feig
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Regulators Focused on Anti-Money Laundering

A risk-based approach is the No. 1 success factor for anti-money laundering programs, survey says.

Regulators view anti-money laundering as one of the most important issues of our time, and the current emphasis on AML is here to stay, according to a recent Ernst & Young survey of financial services executives. Additionally, many AML professionals believe a risk-based approach is critical to the success of an AML program, the survey reveals.

Survey participants were "talking a lot about the risk-based approach," recalls John Sabatini, senior manager of technology enablement in New York-based Ernst & Young's compliance group. Ernst & Young conducted the survey of Bank Secrecy Act and AML compliance professionals at two recent industry events -- the Association of Certified Anti-Money Laundering Specialists Sixth Annual Conference and the American Bankers Association's Money Laundering Enforcement Conference, both of which were held last fall. The company received 125 responses, according to Sabatini.

The most critical factor to the success of an AML program is a risk-based approach, according to 43 percent of those surveyed. Sabatini says a risk-based approach allows financial institutions to focus their resources on the people, accounts and transactions that are most at risk of money laundering or terrorist financing. A risk-based approach, he adds, is critical to targeting AML programs to the right areas and to help institutions with scarce resources and cost pressures.

Risk factors for opening accounts

And the price of institutions' AML compliance efforts is likely to rise. While more than 30 percent of the executives surveyed said their institutions spent between $10 million and $50 million in the previous year on people, technology and outside help to deal with AML regulations, more than one-third said they need more resources than they are being granted by their institutions to comply with AML requirements, Sabatini relates. In addition, more than one-third cited regulatory risk as the risk area in which they would allocate more resources if available. Slightly more than half of the respondents felt that their companies were spending the right amount on AML procedures.

"Across the board, technology was a key component of an AML program," Sabatini adds. Forty percent of survey respondents stated that their technology solutions are critical and fully effective components of their AML programs.

Still, even more-effective technology solutions are necessary to reduce the AML compliance burden, Sabatini asserts, noting that banks and regulators alike have complained about the excessive number of suspicious activities reports (SARs) currently generated. "There is a push for technology that is working effectively," Sabatini says. Banks are looking for ways to make AML alerts more specific and effective so that they can produce fewer SARs, he explains.

The Bank Secrecy Act (BSA), which was adopted in 1970, established the basic framework for AML obligations imposed on U.S. financial institutions. But the regulation's requirements were beefed up in 2001 with the passage of the USA Patriot Act and new anti-terrorism legislation to include new AML obligations, such as the development of AML compliance programs; the creation of customer identification programs; requirements for monitoring, detecting and filing reports of suspicious activity; and mandatory information-sharing in response to requests by federal law enforcement.

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