APAC nations learning compliance lessons from each other

Written by Helen O'Gorman on Monday April 7, 2014

When someone asked me to cover this region for the first time, I thought it was ambitious. The more I learned about Asia Pacific (APAC), the more that statement made sense. Financial services compliance in APAC is moving at both light speed and a snail's pace, depending on where you are standing.

In March,  the chair of the Australian government's financial services industry enquiry went on record saying that Asia is Australia's 'first dependency' for financial rules, suggesting that Asian rules could be more useful to the Australian financial system than those of the EU and US. At the other end of the Asian compliance spectrum, stories appearing in the Nepali press claim the jurisdiction has managed to save itself from a place on the Financial Action Task Force's blacklist of countries who are non-compliant with the 40 Recommendations on AML/CTF by passing five laws through parliament which had been sat in a pile of ordinances for a few years. Blacklisting damages a country's credibility; banking transactions are scrutinised more closely and foreign aid can be affected, something upon which Nepal relies heavily.

A robust compliance culture backed by risk based controls are founding pillars - along with several others - of good governance, compliance and risk (GRC) management in financial institutions or indeed in any other firm doing business in the global market place. Poor culture and controls in firms pose threats to market integrity in the future; more mature regulatory environments are perceived as having better controls and a better integrated culture of compliance, by dint of their years hacking away at regulatory requirements. The reality, however, is that weak controls and culture are having a damaging effect on integrity globally and although APAC's newer entrants into the arena could lag behind in terms of compliance practice, they are also in a position to learn from the mistakes of other jurisdictions and build stronger compliance frameworks from the outset.

Effectiveness tests on the way

During the upcoming 4th round of FATF Mutual Evaluations, the effectiveness of implementing of the 40 recommendations will be measured for the first time. Effectiveness is defined as the extent to which the defined outcomes - overall AML/CTF policy, proceeds of crime detection, threats detected and criminal sanctions used - are achieved while enabling countries to prioritise measures to improve their system. The new methodology crucially allows jurisdictions room to assess the risks posed by threats to their own financial system and to allocate prevention/detection measures according to the size of the threat, which for APAC nations, varies considerably. Australia, Malaysia and Sri Lanka are the first APAC jurisdictions to be assessed for effectiveness in the second half of 2014, with reports on each expected in Q1 and Q3 2015. The FATF's Global Assessment Calendar lists the planned fourth round evaluations from now until 2021.

Sanctioned assets in Asia?

A quick note to round this month off on everyone's new favourite sanctions project - Ukraine. Needless to say, APAC compliance officers will have updated watch-lists to include the members of the ousted Ukrainian administration and a handful of Russianpolitically exposed persons who have made their way onto 'specially designated nationals' lists produced by the US and those on the EU's asset freeze lists. The media is raising questions about how sanctions will affect the numerous oligarchs who have parked their cash outside of Russia, with a good portion of it tied up in London real estate. A few years ago, I spoke to a lawyer for a UK based Russian oligarch about French investigation which had made some reference to the Russian magnate. As a parting shot,I asked the lawyer about his client's vast wealth and how much of it was stored in London. The lawyer told me that as an elected official, which he was at the time, his client's assets were all held in trust and no, he was not obliged to tell me the location of those trusts. Recent comments from City of London financiers hint that few Russian oligarchs are depositing cash in London any more, when other financial centres provide better services. Could some of those deposits be made in Asia?

Helen O’Gorman is the editor of Financial Crime Asia, a blog and news stream highlighting the news items of interest and trends in the financial crime across the continent and global items affecting financial services compliance professionals in the region. Financial Crime Asia focuses on compliance, regulation, blatant abuses, dirty dealings and innovations. She is also a member of the Lifeboat Foundation's New Money Systems Board, a panel to discuss new currencies and money systems which are not backed by governments.