BDO has stated that banks are concerned any failures during their due diligence process may potentially expose them to huge Anti-Money Laundering (AML) fines even if the process is fully compliant. Concerns over money laundering penalties mean that 22% of banks in the UK are currently not taking advantage of Financial Conduct Authority (FCA)-approved simplified background checks on low risk clients.
While EU AML rules are designed to allow banks to adopt a risk-based approach and subject low risk clients to less stringent and expansive checks, the survey of 32 banks conducted by BDO and the Association of Foreign Banks found that a very significant percentage of banks do not use this route.
Failures in AML processes have led to a number of record-breaking fines against banks, with fines levied by UK and US regulators and prosecutors running into the billions of dollars.
By not taking advantage of the simplified due diligence, banks are missing out on efficiency savings. Subjecting low risk clients to a lengthier checking process can also be detrimental to the relationship between the bank and the client.
When conducting simplified due diligence, banks are permitted to perform reduced checks. For example, they may collect fewer items of customer documentation, there’s no need to obtain external verification of client documents and banks only need to receive client documents once transactions surpass a predefined threshold.
Low risk customers might include a low risk pension fund or a low risk listed company, for example.
If a client is found to be higher risk, banks are required to perform more in-depth checks, known as enhanced due diligence.
Michael Knight-Robson, senior manager at BDO, commented: “The FCA is keen for due diligence levels to be kept to a sensible and proportionate level, benefiting both the banks and their clients. However, it seems that many banks are taking a much more cautious approach than they should be. Considering the level of fines within the AML area that’s understandable.”