Achieving Global Sanctions Compliance: Challenges and Solutions

by Neil Katkov, PhD, September 8, 2011
Industry Trends
Global

Abstract

A study by Celent and sponsored by Dow Jones Risk & Compliance looks at the challenges and best practices in managing customer and transaction screening processes—“watchlist filtering”—at large financial institutions.

In a new report, Achieving Global Sanctions Compliance: Challenges and Solutions, Celent examines issues related to achieving efficiency and consistency across the complex, distributed compliance operations of major global banks. The report focuses particularly on sanctions compliance, which is the area of anti-money laundering (AML) that is most dependent on watchlist data.

This close reliance on the data means that effective sanctions compliance relies on clean, well-managed, and optimized watchlist data. But as the industry well knows, watchlist data presents myriad challenges in terms of data quality, complexity, and maintenance.

The report is based on Celent’s own observations of the state of sanctions compliance, as well as conversations with some 15 large banks in North America, Europe and Asia. Findings of the report include:

  • The cost of maintaining sanctions compliance is only escalating. Active regulators in the US, EU and UK require banks to adhere to the latest developments in technology and operations, sending new spending into the millions annually.
  • To keep costs in check and improve efficacy, large banks are organizing centralized operations and technology platforms that perform sanctions compliance across multiple business lines of the bank.
  • Some banks feel they have watchlist management under control, while others see it as a burden incurring significant cost, effort and specialized expertise.

“Achieving consistency in global sanctions compliance involves standardizing operations, technology systems, and perhaps most essentially the compliance data—watchlists—that drive sanctions filtering,” says Neil Katkov, PhD, Senior Vice President, Asia for Celent and author of the report. “The challenge is how to keep up with the pace of regulation, and on a global scale.”

The report also considers the effect of the Arab Spring on sanctions activity by regulators, and the special challenges for watchlist filtering and sanctions compliance posed by non-Latin scripts such as Arabic, Cyrillic, Chinese, and Japanese.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

  

Executive Summary

3

Survey Background

5

 

Leveraging Dow Jones Risk & Compliance’s Expertise

5

Introduction

6

 

Special Challenges—The Arab Spring

6

Compliance Operations: Technology and Data at Large Global Banks

8

 

Cost of Watchlist Operations

11

 

The Tangled Web of Compliance

11

Current Compliance Practices

13

 

Centralization of Operations and Systems

13

 

Limits to Centralization: Know Your Customer

14

Challenges of Sanctions Compliance

15

 

Operational Issues

16

 

Complexity of Systems

17

 

Data Issues

18

 

Risks of Decentralized Watchlists

20

Emerging Best Practices in Sanctions Compliance

21

 

Enterprise-Wide Operations and Systems

21

 

Enterprise-Wide Data

23

 

Special Challenges—Non-Latin Scripts

23

Best Practices in Watchlist Management

25

Fitting the List to the Task

26

 

Enhanced Compliance Databases

26

 

Optimized Sanctions Watchlists

27

Looking Forward

29

Leveraging Celent’s Expertise

30

 

Support for Financial Institutions

30

 

Support for Vendors

30

Related Celent Research

31

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