BFIs in tizzy over AML measures compliance

Kathmandu, Jan. 27: Technology gap and inadequate understanding about the sources of customers' money are posing a big challenge to the banks and financial institutions (BFIs) in complying with the anti-money laundering (AML) measures, says a report entitled 'Anti-money laundering process maturity' of the country's banking sector.

"Of the compliance officers from 23 commercial and development banks in Nepal, who participated in the survey, 91 per cent identified inadequate understanding of the sources of customers' information as the top threat for their organisation, while 96 per cent of the respondents cited technology gap as the biggest challenge to AML compliance," reads the report.

National Banking Institute (NBI) had conducted the survey in collaboration with Fintelekt in December 2016.

The banking industry seemed to be a laggard in adopting technological innovations as about 47 per cent of the banks that participated in the survey maintained the Know Your Customer (KYC) and Customer Due Diligence (CDD) manually.

"The lack of an automated system that will allow front-line and compliance staff to readily and easily access customer information digitally is likely to compromise monitoring and reporting," reads the report.

Other threats haunting Nepalese BFIs are poor understanding of the beneficial ownership of corporate clients, trade-based money laundering and monitoring customers that transact across the lines of business while terrorist financing or organised crimes are considered a low risk area.

The study found that coping with domestic regulations was also a top AML compliance challenge for Nepal, as per 91 per cent of the participants of the survey.

About 87 per cent of the compliance officers thought inadequately trained staff was a big challenge while lack of engagement by the senior management was also considered a challenge by 57 per cent.

It found that the Nepalese banks lacked robust systems and processes to help them establish greater control over AML monitoring and record keeping.

AML risk identification and assessment have got low priority in the BFIs.

Only 47 per cent of the banks participating in the survey have updated high-risk customer profiles in the last six months while 40 per cent have never renewed or have not renewed the risk profiles in the last three years, and 59 per cent of them are not reviewing money laundering risks in every transaction.

Only two banks have an AML compliance team of 21 to 50 professionals, while more than two thirds of them are operating with a team strength of five or even less dedicated staff members for AML.

The lack of support and involvement from the top management team and the Board of Directors pointed to low priority being accorded to AML compliance by banks as 78 per cent of the respondents believed that they needed more support and involvement from the senior executive management.

"Overall AML and combating financing of terrorism (CFT) regime in Nepal is yet to develop,” said managing director of Fintelekt Shirish Pathak. “Besides, maturity levels vary across banks, with some banks ahead of others on the curve in terms of risk identification and assessment, monitoring, technology and training."

The survey is the first of its kind in Nepal and covered the processes related to risk identification and assessment, monitoring and record keeping, politically exposed persons (PEPs), Foreign Account Tax Compliance Act (FACTA), technology and systems, resources, training and other parameters.

The report was launched at the AML conference organised by the NBI in Kathmandu on Friday.

Discourage money without source: governor

Governor of the central bank, Nepal Rastra Bank, Dr. Chiranjibi Nepal urged the bank and financial institutions (BFIs) to discourage money whose source could not be identified.

"Discouraging fraud customers, organisations and transactions is also the responsibility of the banks. The central bank wants your cooperation in the AML efforts," he said addressing the Anti-Money Laundering conference in Kathmandu on Friday.

He said that the AML was not a choice but a requirement for the banks' own profitability and sustainability.

He said that Nepal was committed not to allow any money earned through unidentified sources and have the potential of being used in illegal activities in the country.

The governor asked the BFIs not to make the KYC (Know Your Customer) detail exhaustive, which might scare the customers.

President of Nepal Bankers' Association Anil Keshari Shah said that it was time to invest in developing human capital and in technology on AML.

"AML compliance should be in the DNA of every employee of banks and followed religiously," he said.

NBI chairman Ajay Shrestha said that the bank deposits should be clean in nature. 

(Published in The Rising Nepal)