The World Bank

Supervision of Banking Sector on AML/CFT

- Introduction to the Workshop -

SB KohSr. Financial Sector Specialist

Financial Market Integrity

Overview of Workshop

Why Supervision Matters (Background)

Weak Compliance in Financial Sector

Issues Related to Banking Supervision

1) On-site vs. Off-site Supervision

2) AML Compliance and STR

Reporting/Analysis

3) Enforcement and Sanctions

4) National/International Cooperation

5) New Issues – Mobile Banking

Group Exercises/Presentation/Wrap-up Discussion

Why Supervision Matters (Background)

Banks are gatekeepers of financial system.

Banking supervision is important.

→ The industry needs guidance and directions from the supervisors.

→ An effective AML/CFT supervisory and sanctioning system is critical.

FATF Recommendations emphasize

regulation & supervision

Weak Compliance in Financial Sector

Supervisory compliance is generally lower than the

average of all recommendations.

Few Countries rated as Largely and Fully Compliant.

→ R17 (Sanctions), R23 (Regulation & Supervision), R25

(Effective Guidelines) are all below the average of 42%.

→ R5 (CDD) is only 10.4%.

► Session 2(a) : Key findings on AML/CFT supervision

from MERs/DARs <Presenter : APG>

Weak Compliance in Financial Sector

0%

20%

40%

60%

80%

100%

R5 R17 R23 R25 R29 R30 R32Co

un

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arg

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R32: Stats

Average= 42%

R17: Sanctions

R23: Regulation & Supervision

R25: Guidelines

R29: Supervisory Authority

R30: Resources

R5: Due Diligence

Issues on Banking Supervision

I) Off-site vs. On-site Supervision : How to improve current weakness

Off-site supervision is a powerful means for effective AML/CFT implementation.

– Off-site supervision is ongoing and covers entire banking industry.

helps ensure the same level of AML/CFT system across the banks

(critical as money launderers and terrorist financiers tend to shop for the most lenient financial institution)

The emphasis tends to be more on On-site Supervision.

- The most effective tool to assess compliance with AML/CFT requirements

- Analysis of AML/CFT policy and procedures, need to be complemented by sample testing

► Session 2(b) : Main challenges for off-site, on-site Supervision <Presenter : WB>

► Session 4(a) : Off-site Supervision <Presenter : IMF>

► Session 4(b) : On-site Inspection Tech.

<Presenter : IMF>

Issues on Supervision (Cont’d)

Issues on Supervision (Cont’d)

2) AML Compliance & STR Reporting/Analysis

: Raising Skills of Banking Supervision

It is essential to have clear policies on STR reporting.- Identification of suspicious transactions

→Role of frontline staff/compliance unit is important.- Reporting of suspicious transactions

→ Procedures and responsibilities must be examined.

But, in many cases, shortcomings are identified later by off/on-site supervision.

► Session 5 : AML Program Weaknesses and STR

Analysis <Presenters : US Treasury/WB>

Issues on Supervision (Cont’d)

3) Enforcement and Sanctions : Making Them Work

A suitable sanctioning is essential for effective supervision.

The nature of the sanction varies according to legal regime/particular circumstances.

- But, it should be effective / dissuasive / proportionate.

► Session 6 : Enforcement and Sanctions

<Presenters : US Treasury/WB>

► Case Studies for Sanctions <Presenter : WB>

Issues on Supervision (Cont’d)

4) National/International Cooperation: Ways to Enhance

Both domestic/international cooperation are essential.- Failing to cooperate is one of the main reasons for

a country’s AML/CFT framework failing or being ineffective.

Domestic Cooperation involves

- Public, public-private, private sector cooperation International Cooperation involves

- Supervisory/Law enforcement agencies, FIU

► Session 9 : National/International Cooperation

<Presenters : WB/IMF, Countries>

Issues on Supervision (Cont’d)

5) New Issues – Mobile Banking : How to Regulate It

Mobile banking financial services

- Booming in developing countries

- Require higher level of expertise, and capacity to assess risk in new channels for money transfers

► Session 10 : New Challenges for Supervisors: The Case of Mobile Banking <Presenter : WB, Country experiences>

Group Exercises/Presentation/Wrap-up

1) Sessions 7, 8, 11 and 12 : Group Exercises

- Group Exercise on Effective Sanctioning (7 & 8)

- Group Exercise on Mock Inspections (11 & 12)

2) Session 13 : Presentation

- Findings of Group Exercises on Mock Inspection

- Country Experiences with Off/On-site Supervision

3) Session 14 : Wrap-up Discussion

Thank you!