Invest
New report highlights rising anti-money laundering risks and need for three lines of defence
Invest
New report highlights rising anti-money laundering risks and need for three lines of defence
A new report published by Ocorian and Newgate Compliance has warned that rising anti-money laundering (AML) risks are increasing the pressure for alternative fund managers to have three lines of defence (3LOD) in place.
New report highlights rising anti-money laundering risks and need for three lines of defence
A new report published by Ocorian and Newgate Compliance has warned that rising anti-money laundering (AML) risks are increasing the pressure for alternative fund managers to have three lines of defence (3LOD) in place.
The report, entitled "Three lines of defence in AML: creating a culture of compliance," found that 73% of alternative fund managers have seen the level of AML risks increase over the past two years, and 88% say compliance risk is likely to increase over the next two years.
However, the report also warns that in many firms, the AML function is stretched to breaking point, with under-resourced compliance teams and insufficient investment. It highlights the importance of a cohesive, separate strategy in mitigating AML risk and how streamlining 3LOD can create efficiencies and improve protection without adding significant costs.
The report builds on Ocorian's international study, carried out among senior leaders and senior compliance and risk executives at alternative fund manager firms collectively managing around US$132.25 billion. Despite almost all (99%) saying senior management and the Board already take AML management seriously, almost three quarters (70%) admit that their organisation has been subject to AML fines or sanctions in the last two years.
Nearly all the firms surveyed (98%) said they took a 'three lines of defence' approach to compliance and risk management, consisting of frontline policies and processes, oversight and intelligence, and finally, auditing. However, around two-thirds (64%) said their compliance management teams were under-resourced, and the 3LOD approach only works when each line of defence is working effectively.
Joe French, Managing Director and Head of Financial Crime at Ocorian, said: "Our findings reveal that financial crime teams are under-resourced, and this is creating additional risk to firms. Particularly in a slow economy, compliance officers often struggle to make the case for greater investment, but criminals and regulators clearly don't stand still."
The report highlights how firms can streamline their three lines of defence to create efficiencies and improve protection without piling on costs. Ocorian's three lines of defence approach includes creating clear and robust frontline processes and procedures, building and empowering a comprehensive compliance oversight function, and seeking review and challenge of the firm's AML framework via annual independent audits.
Ocorian's subsidiary compliance consultancy service, Newgate Compliance, delivers pragmatic and flexible solutions to help clients meet often complex, evolving, and increasing regulatory obligations. The team, led by industry experts and ex-regulators, assists clients with the submission of regulatory authorisation applications, provision of Money Laundering Reporting Officers (MLROs), the implementation of compliance frameworks and governance structures, as well as regulatory and compliance training for employees.
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