Despite constant new regulations and sophisticated technology, one of the main reasons why money-launderers and terrorism financiers continue to succeed is a simple lack of qualified personnel able to make effective use of such tools, according to a recent survey carried out in the Europe, Middle East and Africa (EMEA) region by global accounting firm PwC.
In Europe, the European Parliament last week passed its 6th directive to further strengthen the EU’s toolkit, with large majorities for the elements of the package.
PwC Luxembourg’s anti-financial crime leader Michael Weis, who oversaw the survey, described the effect of the package as creating “a more harmonised regulatory environment across borders and industries and address some of the operational challenges faced by firms.”
Turning point
The ever-doughty European Commissioner Mairead McGuinness described the urgency of tackling financial crime, describing the current round of rules as a “turning point in the European Union’s fight against crime.”
“We’ve seen far too many money-laundering scandals, where mainstream financial institutions have laundered money and so helped criminals hide the illegal proceeds of their activities,” she wrote in a foreword to the PwC report.“Behind these illicit funds are crimes that hurt individuals, families and communities, and terrorist organisations that threaten the safety of citizens.”
Luxembourg was noted in the report as a “positive outlier” due to the country’s large investment fund industry focussing on screening and know-our assets for several years. Only 79% of EMEA respondents were even performing AML screening against their asset portfolios or custody accounts.
Remarkable finding
A “remarkable finding” in the PwC report, however, is that a lack of capable staff facilitates these crimes. What goes for the EMEA region goes at least double for Luxembourg, which has a history of being unable to attract the necessary skilled professionals, while at the same time, having a laissez-faire approach to harmful corporate human resources practices fuelled by age discrimination.
The survey showed that a third of respondents agreed that “the lack of skilled resources constitutes one of the main impediments to increasing the use of new technologies in their AML operations.”
“Although technology can be a great catalyst for progress in AML capabilities, respondents have consistently mentioned that finding qualified AML professionals that can implement new technologies is extremely difficult,” said the PwC report. “This is quite a remarkable finding, since most, if not all, recent business trends involve some form of technological hype.”
Stumbling block
“Obviously, technology is also a key area for our respondents, but they consider the shortage of qualified people as a major stumbling block to AML progress despite all the great opportunities technology and AI can offer,” with PwC then noting, perhaps with understatement that, “this tends to be underestimated in public discourse.”
“This problem is especially pronounced when it comes to upgrading AML teams’ digital infrastructure, which requires highly technically skilled staff to achieve the right output from new technological opportunities.”
The lack of sufficiently qualified staff leads to a “vicious cycle whereby firms struggle to carry out their AML processes in an effective manner, let alone implement technology-enabled solutions.”
Least effective
The report speculates that ‘upskilling’, also known as training, will be a significant investment driver in the coming years.
The report also takes issue with financial industry respondents who “tend to agree that customer due diligence (CDD) onboarding and CDD periodic review are the least effective controls”.
The report’s PwC authors opined that “this view is largely misguided, as the CDD is the foundation of effective AML since it is the crucial point at the beginning of the AML process where institutions build a fundamental understanding of their customer.”
AI future
Artificial intelligence is considered by many observers to be the next technological quick-fix and productivity multiplier that will save our economies. The report reveals that financial institutions across the EMEA are “considering implementing artificial intelligence (AI) solutions to their AML operations”
Most surveyed pointed to transaction monitoring and screening as the main AML functions they plan to use AI to carry out, as mentioned by 79% and 59% of respondents, respectively.
But, worryingly for technology advocates, over half of the respondents (55%) “are concerned that the maturity of their AML processes is a constraint to AI adoption. Over half (53%) are still concerned about sharing data with external providers.
Answering the call
McGuinness stated that “the private sector’s call in this survey for effective rules that address practical challenges in AML/CFT is clear”.
“I believe that the EU has delivered with this reform of the EU’s AML/CFT framework.