The World Bank Supervision of Banking Sector on AML/CFT - Introduction to the Workshop - SB Koh Sr. 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

Weak Compliance in Financial Sector 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 ► Session 4(a) : Off-site Supervision ► Session 4(b) : On-site Inspection Tech. 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

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 ► Case Studies for Sanctions

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

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

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!