Money Laundering Problems Fuel Support For LEI

The legal entity identifier (LEI) and hierarchical data can help to prevent anti-money laundering (AML) failures like those uncovered at HSBC and Standard Chartered, according to the CEO of Fenergo, a vendor of client onboarding systems, and experts agree investment in AML will increase as a result of the high-profile and expensive settlements the two banks have agreed to pay.

According to Marc Murphy, Fenergo's Dublin-based CEO, the importance of accurate reference data and ultimate beneficial ownership data has been underlined by the cases of HSBC, which agreed to pay US authorities $1.9 billion to settle accusations that it failed to prevent money laundering, and Standard Chartered, which will pay $340 million to settle allegations that it hid transactions with Iran.

"No matter how much business is going on, if you have the proper golden source for master reference data, the LEI and AML beneficial ownership steps in place in your onboarding process, you can actually prevent this kind of thing happening on an on-going basis," said Murphy. "Reference data can give you a hierarchical relationship view to show you how Joe Bloggs in front of you is connected with other legal entities, other reference data people and items within your data structure." However, Murphy pointed out, if staff at a bank want to conceal a relationship, they will find ways to do so.

Neill Vanlint, London-based managing director EMEA and Asia, at GoldenSource, an enterprise data management (EDM) software vendor, said operations and IT at global financial firms can struggle to keep pace with the revenue-generating business as it enters new jurisdictions, and this can create opportunities for AML failures.

Vanlint said the recent high-profile cases of AML failures have increased firms' concerns about the process and their willingness to invest in it. "If you are in a budget situation, you are not going to get a lot of pushback to spend money on AML when there are fines like that coming around," he said.

Virginie O'Shea, London-based analyst at Aite Group, said client data monitoring and maintenance has received inadequate investment for a long time. "The responsibility and risk related to monitoring know-your-client/AML data often resides with a compliance team that is beleaguered by staff churn and tight technology budgets," she said. "Often, monitoring technologies have been developed in a patchwork fashion and may not cover all bases when it comes to investment banks in particular."

O'Shea expects spending on AML and KYC to increase "in a modest fashion" while budgets in other areas are cut. "This is because most firms are very wary of the reputational damage caused by regulatory fines at a time when trust in the financial services sector is at an all-time low," she said.

You can actually prevent this kind of thing happening on an on-going basis