Last Friday HKMA issued a letter which set out its approach to "formalise" the use of supervisory measures against serious AML deficiencies in individual banks. Simply speaking, HKMA has broadly categorised the following three levels of available measures, namely Level I (emerging concern), Level II (significant concern) and Level III (severe concern).
HKMA will deal with Level I and Level II situations largely through the use of the use of "administrative or prudential measures", and Level III situations mainly through the exercise of "statutory powers".
Examples of supervisory measures taken by HKMA for each level are given below.
Level I:
- Issue of a warning letter to the bank
- Direct communication to the bank's board, head office or host supervisor
- Requiring the bank to submit a remedial action plan
- Conduct of a follow-up examination asap
Level II:
- Downgrade of CAMEL rating
- Increase of minimum CAR
- Referral of violation cases to law enforcement authorities for investigation or prosecution
Level III:
- Suspension or revocation of the bank's authorization
- Withdrawal of prior consent given for appointment of director or chief executive
If we have confidence on the banking supervision in HK, we can expect Level III situations would rarely happen. Needless to say, more and more compliance resources have been allocated to the AML agenda, thus increasing the workload of compliance officers in other areas.
The topic of money laundering has been over emphasised.
ReplyDeleteThe Prevention of ML Guidance Note in addition to those procedural steps on reporting of suspicious cases, simply contains information concerning the way to choose a "suitable" or "desirable" client and areas that required attention.
The customer due diligence thing is not new. You could find the information in any established English texts on banking practices. Of course, some 10 or 20 years ago, people did not put forward the reason of prevention of money laundering as the major purpose to do good due diligence.
It is good that the significant areas required attention are spelt out with suggested procedural steps. But an experience operation staff or internal auditor would easily identify areas that are of concern.
These just give people focusing on this area an opportunity to change job and pay increment. In fact, all those should have been handled by experience and enthusiatic operation staff.
I have seen people spending much time in AML, say that it is a specialised area and try to demonstrate that prevention of AML is a technical stuff. I could hardly agree.
The big X accounting firm, see the business opportuity, set up teams to get business in this area. I have seen one big X firm's report on an institution's prevention of ML system (commissioned by the institution itself perhaps with the real intention to enhance its system or to make it perfect), the report was ....and their recommendation was .... A junior IA staff can produce such finding and comments and recommendation. Yet, the firm gain HKD????? without any subsequent responsibility.
Prevention of money laundering is not an alien, simply use common sense like an ordinary operational issue would reduce the present overwhelming pressure on compliance people and banks.