Invest more in anti-money laundering systems: Survey

The country's financial institutions need more investment and improvement in their anti-money laundering systems even as 79 per cent of them show a positive attitude towards regulations, a KPMG survey has said.

The survey, conducted by global consultancy KPMG among various financial institutions in the country, showed a positive attitude towards anti-money laundering regulations, with 79 per cent of the respondents believing the level of burden placed upon them was acceptable.

'Though financial institutions in India have covered a large ground in AML compliance, still significant investment and improvement in AML systems is required,' the survey said.

However, only 45 per cent of the respondents felt that the existing requirements were sufficiently geared to address money laundering risks, while 34 per cent felt they could be better focused, it added.

"India's escalating global exposure is also rendering its financial institutions vulnerable to money laundering. The ratification of Prevention of Money Laundering Act in 2005 has made anti-money laundering an essential compliance for financial institutions.

"The onus is on these institutions to play a pivotal role in addressing the issue by assisting regulators and law enforcement managers to fight this crime," KPMG India Executive Director Arpinder Singh said.

With India aspiring to become a member of Financial Action Task Force, it is essential that India also commits to the implementation of wide ranging requirements of the task force. This should include an independent review of policies and processes, Singh added.

The participants in the survey include public sector banks, private sector banks, foreign banks, insurance companies and brokerage houses.

With increased regulatory focus on money laundering, it has become a board room issue with senior management playing an active part in AML compliance, the survey said. It revealed that almost 67 per cent of respondents said their senior management took active role and in another 33 per cent of cases took some interest in AML compliance.

About 66 per cent of the respondents said that although their policies and procedures are developed as per local regulations, these are benchmarked against global regulations.

Furthermore, a majority of respondents (88 per cent) said they have adopted a risk based approach to Know Your The system for transaction monitoring has still been identified as a major area of improvement despite almost 70 per cent of the respondents believing they have an effective system for it. Besides, large number of respondents were still adopting the traditional approach to transaction monitoring as opposed to sophisticated IT tools.Client and another 8 per cent stated they were actively considering it, it added.

'Hence, it does not come as a surprise that 93 per cent of the respondents feel that transaction monitoring system requires increased level of financial and human resources,' the report added. Further, a clear majority of 88 per cent of survey participants provided training to their staff, but only 21 per cent were appointing external trainers.