Caribbean Indigenous Banks Anti-Money Laundering Survey

1. Caribbean Indigenous Banks Anti-Money Laundering Survey An analysis of the local challenges Patricia Hamilton CEO Caribbean Association of Indigenous Banks Inc.

2. - Know your customer (KYC) Account Opening - Anti money laundering standards and procedures An Integrated Approach Compliance Requirements International, Regulatory, Industry, Third Party, Internal Anti-Money Laundering Strategy Business and organisation Processes & Initiatives . Investment suitability Risk assessment Security & technology usage Tax etc. Investent suitability Training and Awareness Program Management Commitment - Administrative and end user policies and procedures - Data KYC Transaction Monitoring/ Tactical short term AML Reporting Tracking Processes solutions Access/Mining Cost of Compliance

3. Challenges

4. Challenges: Management Support

5. Management Support AML is a key value; a function of the integrity of the company and as such must be promoted by directors and management. Key values are supported by management behavior: - Visible attention and appreciation - Agenda item in board meetings - Element of staff assessments - Available budgets for IT, training etc. - Status & powers of the AML officer

6. The “tone on top” Most consider management to be supportive.

7. Challenges: Business vs. Compliance

8. Centralized vs. Decentralized Compliance Function Centralized Advantages • Limits differing interpretations • Limits data entry error • Quality Control is easier Disadvantages • Skills required of staff • Backlog Decentralized Advantages • Skill set applied to entry Disadvantages • Quality Control • Enforcement

9. Management of AML efforts should come from throughout the organization • Establish a “culture of compliance” • Set tone at the top • Top management is ultimately responsible for compliance • Business is responsible for day-to-day compliance • Compliance management plays a key role in corporate governance, monitoring and advisory functions

10. Centralized vs. Decentralized

11. Challenges: Technology

12. Technology as a compliance enabler Rules Refinement Customer Profiling Manual Workflow Where most Caribbean banks are Enterprise Profiling Integrated Organization The above maturity model depicts how Compliance systems can evolve Advanced Monitoring

13. Support systems Just above half report adequate manual & technological support.

14. Use of Technology for AML 77% have either invested or have plans to invest in the future.

15. Capabilities of Transaction Monitoring Software A= Client Profiling B= Transaction Profiling C= Historic Client Behaviour D= Pattern Recognition of Transactions E= Peer Grouping F= All of the Above Most respondents report that their transaction monitoring system has all 5 features.

16. Reviewing Transaction Monitoring software for gaps

17. Impact of Software

18. Challenges: Training

19. Training: Critical components

20. Caribbean Financial Action Task Force

21. Challenges: Accountability

22. Accountability- A necessity • The key challenge for many financial institutions is to sustain the effectiveness of their AML programs on an ongoing basis. • An AML Accountability Review addresses issues related to corporate risk management and the legal liability of corporate directors, officers, supervisors and staff in managing the reporting cycle for suspicious transactions.

23. Regulatory Bodies Governing

24. Familiarity with consequences for breaches Most staff are considered to be familiar with consequences for breaches.

25. Challenges: Human Resources

26. How do we rank? Experience in other jurisdictions shows that a common problem is a lack of skilled and experienced staff with anti-money laundering expertise. How do we rank?

27. Numbers of staff dedicated to AML Most banks employ 1-5 staff whose primary duty is AML. The majority of these are responsible for Transaction Monitoring.

28. The skill-set of staff Although in small numbers, staff are considered to be adequately skilled in AML & CFT.

29. Challenges: Operations

30. The ideal operational infrastructure Maintenance Governance Account / Transaction Monitoring Policy & Procedures Risk Assessment Organization & Controls Threads RiskProfile People Process Record Keeping / Retention AML Regulatory Requirements Technology Reporting Structure Testing Training / Testing

31. Budgetary Expenditure 33% have spent over US $100,000 on Transaction Monitoring.

32. Specific Use of Budgetary Funds A= Increase in staff B= Enhancements to existing transaction monitoring system C= Implementation of automated transaction monitoring system D= Training E= Conferences F= Other Most respondents reported a combination of methods B, D & E.

33. Methods for indentifying suspicious activity Least Used A= Reliance on employees’ vigilance B= Review of exception reports C= Internally developed transaction systems/exception reports D= Vendor supported automated transaction monitoring system Most respondents (28%) reported a combination of methods A, B & C while 17% reported using all four methods.

34. Policies & Procedures However, 50% of these apply only to the Compliance department.

35. To conclude…

36. Essential Elements of Effective AML • Management support, commitment, accountability, “tone at the top” 2. Effective governance structure to oversight line of business functions 3. Comprehensive and actionable policies and procedures to reflect global and country specific requirements 4. Appropriate compliance communication, awareness, reporting, and education plan 5. Process to identify and implement regulatory requirements timely and effectively

37. Essential Elements of Effective AML, cont’d. • Monitoring/self-assessment programs to effectively detect violations and weak control systems • Reporting and communication processes to ensure the status of significant compliance issues are communicated • Tracking process for corrective actions required due to results from monitoring programs, complaints, Internal Audit, and regulatory reports • Effective training programs • 10. Involvement of compliance function in the development of new products and services

38. Questions?

39. Caribbean Indigenous Banks Anti-Money Laundering Survey An analysis of the local challenges Patricia Hamilton CEO Caribbean Association of Indigenous Banks Inc.