Jul.09, 2010, 11:37 AM

KUALA LUMPUR, July 9, (Bernama) -- The Institute of Bankers Malaysia (IBBM) and the Compliance Officers' Networking Group of Malaysia (CONG) will be hosting a two-day International Conference on Financial Crime and Terrorism Financing (IFCTF) 2010 from 19-20 July at a leading hotel here.

The IFCTF 2010, with the theme 'Strengthening Governance to Derive Value', is organised jointly with the Asian Institute of Finance (AIF), the Securities Industry Development Corporation (SIDC) and the Malaysian Insurance Institute (MII), with support from Bank Negara Malaysia.

The organisers have lined up eminent local and international speakers and subject matter experts from the Financial Action Task Force (FATF), The World Bank, US Treasury, Australian Federal Police, AUSTRAC, Asia Pacific Group on Money Laundering (APG), international banks and consultancy firms, Bank Negara Malaysia, Securities Commission, Anti-Corruption Commission (MACC) and Ministry of International Trade and Industry (Miti)

Some of the key issues that will be deliberated upon are risk based measures to deal with high risk customers and countries, money laundering and terrorism financing risks in cross border transfers, trade financing and Islamic finance. Other topics include corruption, human trafficking and ponzi schemes.

THE NEED FOR A SOUND COMPLIANCE SYSTEM

According to CONG chairman V. Maslamani, financial institutions operate in a dynamic environment influenced by market globalisation, industry consolidation, convergence of financial services, emerging technology - including the security threats that come with it.

These forces combine to create inherent risk, and one of the key risks faced by a financial institution is compliance risk. To mitigate risks and remain competitive and profitable in such an environment, banks need to continuously assess and modify their products, services and operational security measures in the wake of new legislation to address developments in the marketplace.

"Regulators expect banks to have in place a robust risk management process to manage all the risks inherent in banking business including compliance risk," said Maslamani to Bernama.

Banks must develop and maintain a sound compliance system that is integrated into the risk management strategy of the organisation. The bank's compliance management system must ensure adequate compliance to regulatory and internal requirements.

To achieve these, financial institutions must judiciously invest in capacity building and adequately trained manpower to assist in mitigating undue risk facing these organisations.

CONG, an advisory committee of IBBM has been working on many initiatives to inject professionalism and to enhance capacity building of the compliance officers in Malaysia.

In pursuit of these objectives, CONG actively works with regulators and learning institutions in Malaysia to raise the level of professionalism in the compliance function and introduce capacity building programs in the banking industry.

IFCTF 2010 is one such programme to raise the level of awareness in Malaysia on the international best practices of Anti-Money Laundering and Counter Financing of Terrorism measures.

"The IFCTF 2010 is the conduit for local financial institutions to learn from the experts on the current and future requirements. The deliberation during the conference will allow compliance officers to align and improve their AML/CFT compliance program," Maslamani added.

THE CHALLENGE FACING BANKING INSTITUTIONS

The ever changing global regulatory and governance requirements pose a great challenge for financial institutions to keep up. With regulatory reform and consumer protection high on the agenda, banks endlessly face new pressures on several fronts.

Failure to comply with laws, regulations, rules or code of conduct, or other acceptable standards carries the weight of legal or regulatory sanctions that inevitably would have an adverse impact to earnings, capital or reputation.

"The challenge for financial institutions is to keep pace with the external developments. They need to invest in technology and manpower, develop education programmes, and find technology solutions that will help protect them from threats posed by criminals ranging from fraudsters, skimmers, money launderers and terrorist financiers. These criminals operate under the cover of legitimate-looking businesses that might not be suspected until it's too late," Maslamani explained.

RED FLAGS

The FATF is the international standard setter with respect to countering money laundering and terrorism financing. The FATF '40+9 Recommendations' currently sets the international standards for combating money laundering (ML) and terrorist financing (TF), which must be adhered with by financial institutions worldwide.

"Financial institutions must develop written programmes that identifies and detects the relevant warning signs of financial crimes and terrorism financing. Constant revision and sharing of the red flags will assist staff at the frontline to detect financial crime and terrorism financing," Maslamani revealed.

The Malaysian banking industry has made significant strides in money laundering detection and prevention through the Anti-Money Laundering Act (AMLA) 2001 and Know Your Customer (KYC) Policy.

Subsequently, AMLA 2001 Act was updated in 2003 and is now known as the Anti-Money Laundering and Anti-Terrorism Financing (AMLA-ATFA) Act 2001 to include terrorist financing.

But with increasingly volatile political and economic developments, coupled with recurring financial crisis in several parts of the globe, banks continue to be vulnerable to money laundering and financing of terrorism.

Dubious organisations and individuals are exploiting vulnerabilities in the international trade and banking systems to move money from illegal sources or for illegal purposes.

The war against terrorism financing relies on international cooperation and common accepted rules, objectives and motives. It requires new tools and new methods.

COMPLYING WITH THE RULES

On April 5, 2010, Malaysia introduced the Strategic Trade Bill specifically designed to provide control over the trade of materials like electronics, avionics and software, which could be linked to WMD.

The Strategic Trade Bill deters individuals or corporations from using Malaysia as a base for illegal arms deal.

More importantly, the Bill facilitates closer partnership between Malaysia and the rest of the world in the global fight against terrorism and the proliferation of nuclear, chemical and biological weapons.

Maslamani suggests that financial institution's Compliance Programme be mandated and managed by the Board of Directors or senior management, and at the very minimum, should include appropriate staff training as part and parcel of managing compliance risks.

"Going forward, while compliance requirements should ideally be part of the daily routine of management and employees of financial institutions, the ultimate responsibility still rests with the Board of Directors. They can delegate but not abdicate and the management must be responsible for ensuring that the Board of Directors have an effective oversight," Maslamani reminded.