When banks choose to risk AML fines as a ‘cost of doing business’ the cost is much higher than the fine itself

In 2021, the Financial Contact Authority (FCA) fined UK firms a combined total £567.7m for money laundering violations. And while penalties like these are imposed in an attempt to force banks to improve their anti-money laundering (AML) processes, is it actually working? Or would banks rather take the risk than put proper AML procedures in place?

According to research from Comply Advantage, many banks actually choose to incur money laundering fines, putting the expense down as simply the ‘cost of doing business’. The study found that the number of firms that would consider the risk of incurring an AML fine or violation increased from 38% in 2020 to 52% in 2021 while more than a third now choose to incur AML fines and admit to making violations ‘all the time’ - up from 25% in 2020.

However, when banks choose to take a fine as a ‘part of business’ it could be costing them a lot more than the fine itself. According to a recent survey by FICO, more than half (56%) of UK consumers would switch their bank if it was caught in a money laundering scandal, rising to 64% 18- to 24-year-olds and 68% of 25- to 34-year-olds.  

This means that, by failing to prevent money laundering, these firms are not only enabling serious crime, but they are risking losing their customers too. And even if they can afford the fines and don’t care about the consequences of not having proper AML procedures in place, their customers do, and are prepared to walk if they don’t like the way their bank is handling their responsibilities.

A recent example of this is NatWest. In December 2021, NatWest was fined £265m for failing to prevent nearly £400m of money laundering carried out by criminal gangs who deposited cash in black bin bags across 50 NatWest branches, including £700,000 at one branch. But quarter of a billion pound fine was perhaps the least of its worries; the damage to its reputation has been huge, and, according to the Current Account Switch service, almost 13,000 customers left NatWest in the first quarter of 2022.

And while we cannot know for sure that those customers left in response to the failure to prevent money laundering, it is highly likely to be a factor, especially when you consider that HSBC was also fined for failing to prevent money laundering in December 2021 - £64 million - and at the start of 2022, lost 65,000 customers. We can also see that once they have left their bank, many customers are switching away from the big players altogether, perhaps in part, in protest to the scandals many have been caught up in, and are choosing to switch to those banks that are taking a different approach - those with the biggest net customer gains this year so far include challenger banks like Monzo, Starling Bank, Virgin Money and the ethical bank Triodos.

So, what can we learn from all this? Well, trust in banks is at an all-time low - according to research by AltFi, almost a third (28%) of adults don't trust their high street banks, rising to 38% of 25- to 34-year-olds, and this is only going to get worse if they continue to shirk their AML responsibilities. Because, while banks themselves may not care about legal - or moral - responsibilities they have to prevent money laundering their customers do.

One of the main reasons why banks let their AML processes slide is because they think putting them in place costs more than taking the fine. But this is not true either. There are now numerous third-party AML providers whose services are affordable and reliable, giving firms the peace of mind that all their AML obligations are being met.

SmartSearch’s award winning platform offers identification, verification, Know Your Customer checks and screening and ongoing monitoring all from one easy to use platform, which can be used as a standalone service or integrated into existing systems, making AML checks quick and easy. SmartSearch’s biometric technology even enables full and robust checks to be run remotely - visit  www.smartsearch.com to find out more.

Sources:

https://www.fca.org.uk/news/news-stories/2021-fines

https://complyadvantage.com/insights/the-state-of-financial-crime-2022/

https://www.fico.com/en/newsroom/survey-more-half-uk-consumers-would-switch-banks-if-theirs-was-involved-money-laundering

https://newseventsinsights.wearepay.uk/media/hlqpmu55/switching-dashboard-issue-33.pdf

https://www.altfi.com/research/digital-banking-state-of-the-market-report-2021