http://www.thehindubusinessline.com/2009/09/03/stories/2009090350230900.htm
Sarabjeet Singh is a worried man. As the partner leading the AML (anti-money-laundering) practice in BMR Advisors ( www.bmradvisors.com), he finds it disturbing that the pressure from the regulator is not felt as much by banks in India. If banks do not make the kind of investments required now, they will always be laggards in the global pecking order, he cautions, during the cours e of a recent email interview with Business Line.
Given the meltdown and its impact on businesses, bank managements globally cannot afford to take their foot off the AML pedal, Sarab notes. If Indian banks treat the topic as a secondary one, and starve it of the required emphasis and attention, they would perpetually be playing catch-up, he adds. “Also, this will seriously impact the ability of Indian banks to expand their offshore footprint.”
Excerpts from the interview:
First, on the seriousness of the problem.
With the increase in integration of India’s markets with global ones, Indian regulators and the banking institutions are under greater stress to rise to the threat of money laundering than ever before. Money laundering concerns have grown manifold in the mature economies as, apart from its known links with terrorist financing and narcotics smuggling, new avenues such as football clubs and other large revenue sporting events are also attracting investigation. Many global financial institutions have reported an increase in suspicious activity over the past year.
Don’t we have the rules in place?
India has enhanced the AML regulatory framework significantly. Recent additions to the PMLA (Prevention of Money Laundering Act, 2002) have brought more entities under its ambit. Expanding from banks, non-banking and even non-financial entities such as casinos have to comply with AML requirements. The RBI (Reserve Bank of India) has done its bit by notifying the rules that are fairly detailed and specific in their specifications. On the monitoring side, the FIU (Financial Intelligence Unit) has managed to get institutions to increase the filing of CTRs (Cash Transaction Reports) and STRs (Suspicious Transaction Reports).
What do you see as the issues demanding urgent attention?
Regulators in the western economies have placed enormous importance on AML laws, regulations and processes, particularly so post 9/11. There has been a significant amount of efforts that have been made by regulators, banks and institutions on setting up new AML systems post more stringent regulations being in place. These efforts in training, people and large technology platforms have been significant and run into hundreds of millions of dollars.
Clearly the objective has matured from a detective control system to a more preventative one. In India, the regulations have only now been put in place; and after the regulatory framework comes, the challenges are of its implementation and institutionalisation.
This requires massive investments in training and hiring additional skilled resources and building technology platforms/software for complex data monitoring. These key issues of skills and the need for better and more robust systems have been pointed out consistently by the AML professionals in the World-Check BMR India AML Survey, 2009.
Your suggestions on how our regulations can be improved.
India plans to be a full member of the Financial Action Task Force (FATF) and accordingly has updated its PML Act, 2002 this year, incorporating a number of FATF guidelines. However, there are key areas where the regulatory framework requires improvements. These include issues such as designated non-financial businesses to include dealers in real estate, precious stones, etc., and to criminalise money laundering as per the UN Convention Against Transnational Crime, 2000.
A step in the right direction has been also taken by including the definition of Politically Exposed Persons (PEPs). However, its broad definition makes it open for differential interpretation and hence issues such as duration of a person being considered as a PEP after remitting office and seniority of government officials needs to be addressed.
A key exception is that Indian PEPs have been kept out of the ambit of the definition and only foreign nationals are subject to this requirement.
Any significant findings from your study?
One important finding is that there is a need for more training and more relevant and advanced training, rather than just an outline of laws and key requirements. Industry experts have to be tapped for training people on not just practices but tools, as well, that are widely used in the global industry.
From the respondents that took the survey, there were three clear types of banks — public sector, private and foreign, with their own sets of issues.
Public sector banks identified transaction monitoring as a key improvement area and the need to invest in more robust AML technology. This tied in well to another marked difference in response on the manner of monitoring in public sector banks. PSBs identified staff vigilance as the primary form of transaction monitoring, as against private and foreign banks which relied more on robust AML technologies.
It points out to a significant issue, given that the majority of transactions in India are done in PSBs, on the need to have more vigilant systems to monitor transactions.
They need massive investments in training, personnel and technology to be in a position to even start being comparable to some of the private sector banks, or for that matter a generational jump is a must to come to the level of most foreign banks operating in India.
Another aspect pointed out was the background of people. For PSBs, personnel who are in the AML function of the banks, only 14 per cent had relevant AML certifications as compared to more than double that for foreign and private Indian banks. It clearly points out to the need for more training, exposure and specialisation in this function.
No comments:
Post a Comment