Too Big To Fail...Small Enough To Jail

The Association of Certified Anti-Money Laundering Specialists (ACAMS) released the ‘ACAMS Compliance Effectiveness and Risks Survey’ last month, which surveyed approximately 340 financial crime professionals globally. Notably, an overwhelming majority did not believe that monetary settlements are “generally effective as a standalone deterrent,” with approximately one in five suggesting that they are “generally ineffective as a deterrent to repeated compliance violations.” For some, the survey results reaffirm what is being said within our networks for some time now, which essentially boils down to -- “fines don’t work.” And to quote a well-respected thought leader within the compliance space: “anything that can be fixed with money is an expense, not a problem.”

With banks having spent approximately $320+ billion on fines, settlements, and enforcement actions in the past decade, the industry spends approximately $270 billion a year on compliance-related costs. In some institutions, including those assessed recently by Sigma Ratings, compliance staff levels now match front-office staff numbers 1 to 1. However, the costs disproportionately affect smaller institutions who bear a heavier burden than their larger counterparts. Banks with under $100M in assets reported that total compliance costs represented 8.7% of their non-operating expenses. On the other hand, banks with $1B to $10B reported costs representing less than 3%. This is partially because smaller institutions are required to adhere to the same regulatory requirements with far fewer resources. What's more, the cost of non-compliance has never been greater. Since 2009, nearly one-third of BSA/AML penalties have exceeded 10% of an institution’s capital. By contrast, no penalty imposed before 2007 exceeded 9% of an institution’s capital.

Regulators have recognized this challenge, with FinCEN giving its blessing for smaller institutions to pool compliance resources in order to reduce costs. This was followed by a subsequent statement encouraging institutions to embrace innovation, specifically emerging technology. Only time will tell whether or not the playing field will be leveled, which appears inevitable with the advancements experienced with technology. Therefore, it’s no surprise that an overwhelming majority, 88% of the respondents in last month’s ACAMS survey, cited the adoption of new technological tools as a top priority for meeting regulatory expectations going forward.

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