Addressing the global money-laundering or terrorist financing risks by global utilities and databases
Oversight authorities, central bankers and organisations are concerned that AML and KYC mandates and trends are fragmenting the global financial system by excluding non-savvy IT people, and underdeveloped countries are excluded from the benefits of cross-border payments, particularly when remittances are a significant portion of a nation's economy.
Wealth distribution, social mobility and income inequality are not limited to economic growth. It applies to Compliance as well.
As the global GDP increases, so does the magnitude of all-source money laundering and counter terrorist financing activities. The IMF and World Bank estimate that 3%-5% of world GDP is laundered-approximately $2.17- $ 3.61 trillion annually. The amount is more or less similar to the GDP of the sub-Sahara African continent.
Compliance concerns force investors to pull out of transactions and markets.
The Payments and Market Infrastructures Committee (CPMI), teams up most central bankers and other stakeholders from across the world, are concerned that global financiers want greater clarity on how to comply with mandatory Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) checks of customers to reflect the transaction issues of the globalised world.
Therefore international oversight bodies and regulators will probably rewrite (again) the banking regulations that check whether a potential customer 'fakes' to be a money-laundering or is involved in terrorist financing that creates regulatory risks for financial institutions.
IT utilities to comply with AML, KYC and CFT
These and similar efforts are a part of the global efforts by oversight authorities to stop cross-border banking from fragmenting under the compliance heavyweight because the tough anti-money-laundering (AML) rules may have prompted some investors to pull out of transactions and markets.
The aim is to create Know-Your-Customer (KYC) utilities or databases that would obtain information from customers from across the banking sector for use by all banks. This would save time and money by avoiding many checks on the same client across the globe.
Global financial institutions need assurances from regulators and law enforcement authorities that global lenders can rely on information from utilities for complying with anti-money-laundering and terrorist financing rules.
International Organization for Standardisation will define the core set of information that all such services would collect and that all banks have to be ready to provide to other banks. The Basel Committee of banking supervisors and the global Financial Action Task Force (FATF) would also look at ways to support the use of utilities.
CPMI published five recommendations to address fragmentation in so-called correspondent banking, the cross-border web that allows people to move money from one country to another.
Compliance inequality
It is expected that the CPMI will ensure that all relevant stakeholders will initiate any necessary reviews or investigations in the light of the five recommendations as soon as possible. Tougher rules to stop money-laundering and other illegal activities have prompted banks to cut links and reduce the cost of stringent checks on who is using their systems.
The Financial Action Task Force has acknowledged the importance of financial inclusion of underdeveloped countries as AML/CFT are complementary objectives. There is a need to develop IT tools to improve guidance to countries, regulators, and supervisors that wish to translate financial inclusion's goals into real progress all over the world.
The global oversight stakeholders have to ensure that the AML and KYC controls are also enforced in less developed countries that are frequently perceived as hazardous. It is possible that compliance controls ar currently not worthwhile because the volume of business is too low to cover compliance costs. That will change over the coming years.
The global economic power will shift away from the established advanced economies in North America, Western Europe and Japan over the next 25 years. China and India where the majority of the poulation do not use the current global financial capital transfer facilities, will probably overtake the US after 2025 despite the current slow growth.
However, African GDP is expected to go from 3 to 30 trillion by 2050.
