All respondents within the business operation R6-R9 argue that the most present risk with not mitigating AML risk is connected to reputation and trust and the financial losses connected to losing the trust of customers. R7 describes the importance of having a good reputation:
“Corporations, in general, rely heavily on their brand and reputation. This is valid for banks as well. If we aim to survive and continue to do business, it is essential that customers perceive that the bank is connected to good values.”- R7 Executive within Business Banking
R7 also emphasized that the potential exposure of criminal funds will be greater when having deficient AML procedures since criminals will identify and exploit this. R8 argued that the financial losses as a result of a damaged reputation can be of enormous proportions even though it is impossible to be 100% protected. AML is complex and there will always be people and businesses that try to exploit the financial system.
“The risk connected to trust and reputation is central in AML because trust is the core in conducting business with clients. Several Nordic banks have learned the hard way in these questions and it gets devastating consequences in terms of trust and reputation. It is not possible to be 100% protected from money laundering activities. Human mistakes are present in the overall AML process but systematic errors must never be accepted. The challenge poses in that small mistakes in the process can result in severe consequences that harm reputation and trust ” - R8 Branch Manager Business Banking
R6 and R8 raised that the naivety in the Nordic region has been central for explaining the current bank-scandal, which has started the process of identifying and working with AML risk in a more sophisticated manner. The ambition of fast growth in certain markets has been top-priority for Nordic banks which poses a risk itself. When expanding to new regions and markets, it is of great importance to
understand the possibilities of securing a sophisticated AML process locally. Some regions and countries do not have the same resources, legal frameworks or infrastructure to support a valid AML process that raises the risk related to AML. Furthermore, R8 also raises that there exists process-related risk. The AML process itself requires a significant amount of resources in terms of employees with the correct competence. This can pose a problem since banks to a large extent have emptied the market of personnel with AML specific competence. This has and still poses a threat to the integrity of the AML process which increases the process-related risk.
AML Risk Measurement
The respondents within the business operation explain that they are involved and that their customer experience is an important part of the AML process. Client managers are more involved in complicated AML related cases. Client managers are in such cases involved in retrieving required information and have an ongoing dialogue with the AML organization and the customer. In these cases, the customer experience of client managers is essential to support the centralized AML organization. R6, R8 and R9 consider that a large part of the general AML process is standardized and centralized, mainly through internal systems focusing on parameters such as volumes or abnormalities connected to the customer’s risk profile. R6 argues that the business operations knowledge and experience about customers and their activities are most valuable in the on-boarding process of customers and at the beginning of a customer relationship. The follow-up and continuous monitoring of customers are rather standardized and centralized within the AML organization. R7 argues that customer-experience is essential to discover and question suspicious activities. This is hard to do centrally within the AML organization. Furthermore, R7 and R8 consider that the combination of having employees that are specialized in interpreting and complying with regulation, relying on standardized systems together with business experienced employees mitigate AML risk.
Changing Perceptions of Risk
The respondents from the business operation consider that AML is to a greater extent included in the overall risk assessment for individual customers today compared to just a few years back. The required initial analysis and information from an AML perspective are determining if a business relationship may be established. The previous rather narrow focus on credits has shifted and a deeper risk assessment of customers is conducted. R9 argues that AML-risk just as other “new” risks such as sustainability-related are closely connected to credit-risk. R7 further explains the current customer risk assessment:
”We need to make sure that the business opportunity is sound from both an AML perspective and a credit-risk perspective. We even include risks connected to sustainability today when assessing the current business of clients. It is a whole other level of information gathering that we did not do before” R7 Executive within Business Banking
Furthermore, the focus on finding profitable business opportunities is still a top priority, but the AML risk significantly affects the business mindset due to the large negative consequences the bank face if not able to mitigate this risk. The deeper analysis and new ways of approaching the total risk of the customers have had significant impacts on the business organization. It is argued by the respondents within the business operation that the need for gathering more detailed information about the customer’s activity to support the deeper risk-assessment, affects current business-decisions. Client managers and analysts may today come to other conclusions than before since other parameters than pure financial are included in the risk assessment. The combined AML risk and credit risk assessment is considered central for establishing long-term customer relationships as presented by R8:
“Even though the focus on risks related to credit is central today, the AML assessment adds another dimension to the customer’s overall risk profile. The combined AML risk and credit risk assessment are vital for establishing long-term customer relationships. This may result in business decisions that take another turn than what it should have done in the past . ” -R8 Branch Manager Business Banking