There is a major push on to stop money-laundering activities by crooks, and to squeeze off the access of terrorists to funds. These are laudable goals. At a conference today on Anti-Money Laundering and Counter-Terrorist Financing I learned that you can buy a lot of terrorist activity for not very much money. And that some terrorist organizations fund themselves through organizations designed to look like legitimate charities. And I can see clearly why we need to keep the doors closed to dirty cash as a way to control crime. No objection. In fact, I confess I was oblivious to the magnitude of these issues, as well as the positive impact that has resulted from the various new regulations and standards, some domestic, some international.
However there are going to be challenges. And one of them is going to be reconciling the need to focus on customers with the need to check in, check up and report on them.
One chief compliance officer of a financial institution was advising his peers of the importance of "developing a compliance culture".
This presents some challenges, IMHO. The whole financial services industry has spent a decade or so of serious effort to develop a sales and service culture. Some might argue they are not there yet, but they've changed a lot: role design, hiring strategy, training strategy, coaching and managing strategy, process and procedures.
Customers continue to be resentful about compliance related procedures, especially at times of new account opening. The kind of Know-Your-Client due diligence now required at account opening and in connection with some kinds of transactions is definitely going to feel onerous and unnecessary to the vast majority of customers who are honest citizens.
On the other side of this equation, I heard regulators make some fairly disparaging remarks about how easy it is to open an ING Direct account. It's too easy, in their view. They don't like it one bit. They'd stop it if they could. Of course, customers
love the ING process. They are easy to do business with. They don't
make people feel like a potential thief or crook because they want to
open an account.
And as the regulated financial institutions tighten up procedures, the unregulated look more and more customer-oriented.
One possible bright spot in this picture is the development of modelling and neural network software that can efficiently spot questionable activity. The same sort of thing that improved the credit application process for consumers, and is reducing credit card fraud, will also improve detection of money-laundering activities.
In the meantime, FIs will need to find ways to fulfill their
compliance obligations without making their customers feel like second
class citizens. And after they figure this out, I hope they tell
those people running airport security.