Regulators Putting Too Much Stress on Money Laundering Systems: SWIFT Panelist
The “very hot” issue of money laundering has captured the attention of the SEC and FINRA, among other regulators and they making having anti-money laundering (AML) systems in place such a high priority that “everything leads to money laundering” for them, says a panelist who spoke at the SWIFT Business Forum this week in New York.
In fact, the regulators are pressing firms first to have AML systems before any discussion of the presence of money laundering, says William J. Fox, global financial crimes compliance senior executive, managing director for Bank of America — Merrill Lynch. Fox was on a panel focused on compliance issues.
Fox says that a case in point is FINRA’ s $8 million fine last month against Brown Brothers Harriman & Co. FINRA fined BB&H for alleged AML compliance failures including a “failure to have an adequate anti-money laundering program in place to monitor and detect suspicious penny stock transactions,” according to FINRA officials. FINRA also cited BBH for not meeting its Suspicious Activity Report (SAR) filing requirements. FINRA officials also said that BBH had an inadequate supervisory system to prevent the distribution of unregistered securities. FINRA also fined BBH’s former Global AML Compliance Officer Harold Crawford $25,000.
“I was shocked by that action,” Fox says. “The environment is really treacherous.” Fox says that he was so disturbed by FINRA’s actions that he asked officials at BofA — Merrill Lynch: “What are we doing about liability insurance?”
Firms will need to apply escalation procedures when they encounter suspicious activity to prevent situations like these, Fox says. In the meantime, the regulators may start to hold firms to high standards that the regulators themselves failed when they were auditing Bernie Madoff, he says. “They missed it completely. Should we go back to 9/11? Is that the standard? How do you miss the dots?”
Six Big Banks Support SWIFT’s KYC Registry
In an announcement related to the SWIFT Business Forum, the financial messaging and services consortium has signed a memorandum of understanding (MOU) with major banks to jointly develop and use SWIFT’s KYC Registry, a utility for the collection and distribution of standard information for their due diligence processes.
The institutions committing to use the registry include BofA— Merrill Lynch, Citi, Commerzbank, JPMorgan, Societe Generale and Standard Chartered.
The MOU specifies that the banks will participate in a SWIFT-led working group to formulate the registry’s processes, and create the documentation and information necessary to fulfil KYC requirements across multiple jurisdictions. The banks will also populate the registry with their KYC data.
The banks and SWIFT are creating a service to help banks manage compliance and shrink the high costs of implementing know your customer-related regulations, say SWIFT officials. SWIFT will run the KYC Registry with an initial focus on correspondent banking relationships. More banks are expected to join the initiative in the coming months.
TSE Offers IT Performance Tool to Trading Network Users
The Tokyo Stock Exchange will begin to offer a latency performance management tool to users of the exchange’s arrownet network that could help end-user firms gain new visibility into IT operational risks, say officials at Corvil, provider of the service.
A major source of operational risk is the IT risk caused in part by a lack of visibility into the performance and health of the underlying IT systems and network, says Donal Byrne, CEO of Corvil. The CorvilClear service assesses the end-to-end network and application layers of IT infrastructures. “This includes both the market participant’s infrastructure and the TSE infrastructure,” Byrne says.
For the past two years, the TSE has been using Corvil for the latency performance management of its arrowhead and Tdex+ trading systems and arrownet, which connects these systems to market participants.
The offering is targeting any institution that trades high volumes on the TSE, particularly the large broker-dealers, local Japanese banks, electronic market makers, and prime brokers, Byrne says. Operations staffs can use this new link to improve middle- and back-office processes such as reporting requirements. “They can use it to historically report on the lifecycle of any order that is queried,” he says.
“The aim of the service is to help with execution performance and predictability,” Byrne says. “It is not focused on total cost of transaction analysis.”
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