Europe’s Banks See Rising Costs to Money Laundering Scandals: Report
24 Apr 2019

The costs that European banks incur for failing to prevent financial crime are rising, with little reassurance that more money laundering scandals won’t come to light in the next two years, S&P Global said in a report.

The findings follow a 2018 report by the financial services company that concluded that there are “few reasons to be optimistic” that anti-money laundering (AML) and sanctions compliance lapses by Europe’s banks won’t surface in the near term despite efforts by financial institutions and EU member-states to mitigate the problem.

Since the 2018 report’s publication, new details of related regulatory troubles at Swedbank, ING, Deutsche Bank, Standard Chartered Bank, UniCredit and UBS have underlined the need for financial institutions to rethink their risk governance and invest in data-analysis tools and other technology, according to the New York-based firm, which rates market risks of financial institutions and jurisdictions.

The rising costs stem in part from a growing interest in compliance settlements among investors, stronger regulatory enforcement by national supervisors, diminished tolerance of scandals by “sensitized” customers and a trend in the financial sector to focus less on credit and market vulnerabilities and more on other risks, S&P Global said.

“The transparency of alleged transgression appears to be rising thanks to the efforts of investigative organizations, leaks from bank insiders, regulators’ greater willingness to reprimand banks publicly and the rapid and widespread sharing of information via social media,” the firm said.

The scandals are already driving up franchise and solvency risks for European banks and could prompt foreign financial institutions to reconsider the potential costs of processing remittances and other cross-border payments, according to S&P Global.

In addition to supporting ongoing efforts to strengthen AML oversight in the region, European regulators should consider legislation that would address legal barriers to identifying beneficial owners across multiple jurisdictions, loopholes in interbank payment messaging that hinder transparency and funding concerns at national financial intelligence units, the company said.

As part of a banking reform legislative package, the European Parliament last week approved plans to empower the European Banking Authority (EBA) to draft bloc-wide AML standards, recommend related enforcement actions to member-states and conduct risk assessments of nations and peer reviews of supervisory authorities.

European lawmakers separately endorsed new protections for whistleblowers and called on prudential supervisors to more aggressively consider AML lapses in their institutional assessments. EU ministers have yet to approve the EBA and whistleblower proposals.

Read more:

New EU beneficial ownership rules for trusts: good news for offshore?

EU Parliament Empowers EBA, Prudential Regulators to Fight Money Laundering

In 2018 Audit, Deutsche Bank Saw High Risk of Ties to Russian Money Laundering

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