Anti-money laundering - the final solution

Money laundering continues to be a scourge on financial services. Recent cases of some of biggest and most respected banks clearly demonstrate that as time goes by the risk of money laundering keeps increasing. Despite decades of measures and huge expenditure on anti-money laundering systems the figures show we are losing the battle. Indeed the size of the problem is greater now than when laws were introduced decades ago. What’s going wrong and why is it that FIs find it almost impossible to produce a secure market where money laundering is impossible?

Much of the problem appears to me to be caused by gaps in the systems and databases of financial institutions. As we all know only too well, FIs have evolved into silo models and so despite the heavy investment in integration and message transformation software, the core problems that need to be overcome to produce a secure anti-money laundering system and network continue to fail. It’s obvious that all technology that has been developed to date and the various architectures, all suffer from the same weaknesses.

Numerous accounts within each FI and then across the industry, have created a complicated infrastructure, which has failed, despite many attempts, to create robust and workable solutions which provide an impenetrable barrier to money laundering. In part this has happened because the focus was in the wrong place. Imagine if all the industry operated using the same single client account, per client. All activities by a client would be visible and all FIs would have the same base data. Any unusual transactions would show up like a beacon and the industry could uniformly take any action necessary. The Money Laundering officer would immediately see if there was a problem. Indeed in my imaginary scenario the industry would only need one Money Laundering officer. A little pie in the sky I grant you but let’s explore the same scenario from a different point and a different solution to get the same effect.

Supposing all FIs had the same identifying code aligned to the particular client account number. In this way the whole of the financial services industry would be operating from the same identifier and in effect the same account and thereby you get to my imaginary scenario.

Until the financial markets close the gaps in data, operations and business silos, money laundering will continue to be an unsolvable problem with the likelihood of increased penalties for breaches and failures. LEIs have such a vitally important role to play in producing the final solution. We will be debating this and more at the next Post Trade Forum in London on the morning of the 25th September.