Regulators are tightening their grip on anti-money laundering compliance. As a result, banks and other financial institutions have begun to re-examine the ways in which they address risk in their operations. Historically, they have done do by taking drastic measures — exited business lines or cutting ties with business partners.
But recently the Federal Deposit Insurance Corporation called for a more measured approach in how institutions manage risk and key relationships.
The FDIC’s recommendation coincides with a move by financial institutions to a “de-risking” approach in their operations. Although eliminating or significantly limiting business lines, products, or geographies, that may pose risk to AML-compliance efforts may seem prudent, it also could potentially hinge growth at financial institutions. Such moves may also run counter to strategic business objectives, and may not zero in on prime risk areas such as high-risk customers or emerging markets.
Today, financial institutions face a key decision, namely how they should balance de-risking with growth objectives. To be sure, eliminating all risk may be unrealistic. Instead, moves to shed certain businesses, which are aligned with a more measured approach, may be steps that reduce risk, without having an adverse impact on business objectives.
Financial institutions can become “risk intelligent” by taking a fresh look at inherent and perceived risks. As part of this process, they may focus on several areas such as whether a culture of compliance exists throughout the organization or if there are appropriate incentives to incorporate AML compliance objectives across the organization. Also, they can determine whether various reporting, technological, and other systems are integrated geographically or if compliance monitoring and testing is sufficient to identify potential weaknesses.
A risk-based approach to AML compliance can create enterprise value by enabling management to pursue opportunities. It may, for example, enable it to forge new relationships or develop new products. Armed with robust AML controls companies may pursue these growth areas, while still maintaining overall AML risk at a tolerable level. It may do so by implementing additional controls to counter both perceived and inherent AML risks that enable it to pursue new relationships that can help it to achieve its growth objectives.