Caribbean Indigenous Banks AntiMoney Laundering Survey An analysis

Caribbean Indigenous Banks Anti-Money Laundering Survey An analysis of the local challenges Patricia Hamilton CEO Caribbean Association of Indigenous Banks Inc.

An Integrated Approach Compliance Requirements International, Regulatory, Industry, Third Party, Internal Management Commitment Business and organisation Processes & Initiatives . Investment suitability Risk assessment Security & technology usage Tax etc. Investent suitability Know your customer (KYC) Account Opening Anti- money laundering standards and procedures Administrative and end-user policies and procedures KYC - Data Access/Mining Transaction Monitoring/ Tracking Processes AML Reporting Training and Awareness Program Anti-Money Laundering Strategy Tactical short term solutions 2 Cost of Compliance 34 th Annual General Meeting & Conference, 2007 Patricia Hamilton, CEO CAIB Inc. 2

Challenges Management Oversight and Guidance Training Managing Cross. Functional Expectations (Business vs. Compliance) IT Systems Accountability for Non-Compliance Adequately Skilled and Sufficient Officers and Staff that understand local requirements Operational Improvements 34 th Annual General Meeting & Conference, 2007 Enterprise-wide standards Patricia Hamilton, CEO CAIB Inc. 3

Challenges: Management Support Management Oversight and Guidance Training Managing Cross. Functional Expectations (Business vs. Compliance) IT Systems Accountability for Non-Compliance Adequately Skilled and Sufficient Officers and Staff that understand local requirements Operational Improvements 34 th Annual General Meeting & Conference, 2007 Enterprise-wide standards Patricia Hamilton, CEO CAIB Inc. 4

Management Support AML is a key value; a function of the integrity of the company and as such must be promoted by directors and management. Key values are supported by management behavior: - Visible attention and appreciation - Agenda item in board meetings - Element of staff assessments - Available budgets for IT, training etc. - Status & powers of the AML officer 34 th Annual General Meeting & Conference, 2007 Patricia Hamilton, CEO CAIB Inc. 5

The “tone on top” Most consider management to be supportive. 34 th Annual General Meeting & Conference, 2007 Patricia Hamilton, CEO CAIB Inc. 6

Challenges: Business vs. Compliance Management Oversight and Guidance Training Managing Cross. Functional Expectations (Business vs. Compliance) IT Systems Accountability for Non-Compliance Adequately Skilled and Sufficient Officers and Staff that understand local requirements Operational Improvements 34 th Annual General Meeting & Conference, 2007 Enterprise-wide standards Patricia Hamilton, CEO CAIB Inc. 7

Centralized vs. Decentralized Compliance Function Centralized Decentralized Advantages • • • Advantages Limits differing interpretations Limits data entry error Quality Control is easier 2/24/2021 Skill set applied to entry Disadvantages • • • Quality Control Enforcement Skills required of staff Backlog Patricia Hamilton 8

Management of AML efforts should come from throughout the organization • Establish a “culture of compliance” – Set tone at the top • Top management is ultimately responsible for compliance – Business is responsible for day-to-day compliance – Compliance management plays a key role in corporate governance, monitoring and advisory functions 2/24/2021 Patricia Hamilton 9

Centralized vs. Decentralized 34 th Annual General Meeting & Conference, 2007 Patricia Hamilton, CEO CAIB Inc. 10

Challenges: Technology Management Oversight and Guidance Training Managing Cross. Functional Expectations (Business vs. Compliance) IT Systems Accountability for Non-Compliance Adequately Skilled and Sufficient Officers and Staff that understand local requirements Operational Improvements 34 th Annual General Meeting & Conference, 2007 Enterprise-wide standards Patricia Hamilton, CEO CAIB Inc. 11

Technology as a compliance enabler Manual Rules Refinement Workflow Where most Caribbean banks are The above maturity model depicts how Compliance systems can evolve 2/24/2021 Patricia Hamilton Customer Profiling Enterprise Profiling Integrated Organization Advanced Monitoring 12

Support systems Just above half report adequate manual & technological support. 34 th Annual General Meeting & Conference, 2007 Patricia Hamilton, CEO CAIB Inc. 13

Use of Technology for AML 77% have either invested or have plans to invest in the future. 34 th Annual General Meeting & Conference, 2007 Patricia Hamilton, CEO CAIB Inc. 14

Capabilities of Transaction Monitoring Software A= Client Profiling B= Transaction Profiling C= Historic Client Behaviour D= Pattern Recognition of Transactions E= Peer Grouping F= All of the Above Most respondents report that their transaction monitoring system has all 5 features. 34 th Annual General Meeting & Conference, 2007 Patricia Hamilton, CEO CAIB Inc. 15

Reviewing Transaction Monitoring software for gaps 34 th Annual General Meeting & Conference, 2007 Patricia Hamilton, CEO CAIB Inc. 16

Impact of Software 34 th Annual General Meeting & Conference, 2007 Patricia Hamilton, CEO CAIB Inc. 17

Challenges: Training Management Oversight and Guidance Training Managing Cross. Functional Expectations (Business vs. Compliance) IT Systems Accountability for Non-Compliance Adequately Skilled and Sufficient Officers and Staff that understand local requirements Operational Improvements 34 th Annual General Meeting & Conference, 2007 Enterprise-wide standards Patricia Hamilton, CEO CAIB Inc. 18

Training: Critical components Policies and values of the company Management discussion Communication skills (KYC) 34 th Annual General Meeting & Conference, 2007 Laws and Regulations Laundering Strategies Patricia Hamilton, CEO CAIB Inc. 19

Caribbean Financial Action Task Force 2/24/2021 Patricia Hamilton 20

Challenges: Accountability Management Oversight and Guidance Training Managing Cross. Functional Expectations (Business vs. Compliance) IT Systems Accountability for Non-Compliance Adequately Skilled and Sufficient Officers and Staff that understand local requirements Operational Improvements 34 th Annual General Meeting & Conference, 2007 Enterprise-wide standards Patricia Hamilton, CEO CAIB Inc. 21

Accountability- A necessity • The key challenge for many financial institutions is to sustain the effectiveness of their AML programs on an ongoing basis. • An AML Accountability Review addresses issues related to corporate risk management and the legal liability of corporate directors, officers, supervisors and staff in managing the reporting cycle for suspicious transactions. 34 th Annual General Meeting & Conference, 2007 Patricia Hamilton, CEO CAIB Inc. 22

Regulatory Bodies Governing Countries Regulatory Bodies Barbados Financial Intelligence Unit Cayman Islands Monetary Authority Financial Crimes Unit Portfolio of Legal Affairs Cayman Islands Stock Exchange Jamaica Financial Investigations Division (Ministry of Finance & Planning) Trinidad & Tobago Financial Investigation Unit Eastern Caribbean states Eastern Caribbean Central Bank National Anti-Money Laundering Committee Office of National Drug & Money Laundering Control Policy Guyana Finance Intelligence Unit Suriname Meldpunt ongebruikelijke Patricia Hamilton, CEO CAIB Inc. 34 th Annual General Meeting & Conference, 2007 23

Familiarity with consequences for breaches Most staff are considered to be familiar with consequences for breaches. 34 th Annual General Meeting & Conference, 2007 Patricia Hamilton, CEO CAIB Inc. 24

Challenges: Human Resources Management Oversight and Guidance Training Managing Cross. Functional Expectations (Business vs. Compliance) IT Systems Accountability for Non-Compliance Adequately Skilled and Sufficient Officers and Staff that understand local requirements Operational Improvements 34 th Annual General Meeting & Conference, 2007 Enterprise-wide standards Patricia Hamilton, CEO CAIB Inc. 25

How do we rank? Experience in other jurisdictions shows that a common problem is a lack of skilled and experienced staff with anti-money laundering expertise. How do we rank? 34 th Annual General Meeting & Conference, 2007 Patricia Hamilton, CEO CAIB Inc. 26

Numbers of staff dedicated to AML Most banks employ 1 -5 staff whose primary duty is AML. The majority of these are responsible for Transaction Monitoring. 2/24/2021 Patricia Hamilton 27

The skill-set of staff Although in small numbers, staff are considered to be adequately skilled in AML & CFT. 2/24/2021 Patricia Hamilton 28

Challenges: Operations Management Oversight and Guidance Training Managing Cross. Functional Expectations (Business vs. Compliance) IT Systems Accountability for Non-Compliance Adequately Skilled and Sufficient Officers and Staff that understand local requirements Operational Improvements 34 th Annual General Meeting & Conference, 2007 Enterprise-wide standards Patricia Hamilton, CEO CAIB Inc. 29

The ideal operational infrastructure Main tenan nce na ver o ntr Co me ess Ass & Ris k on ati niz Account / Transaction Monitoring Policy & Procedures ort ing AML Regulatory Requirements Rep e ctur Record Keeping / Retention ls Risk Profile Stru Threads ce ga Or nt Go People Process Technology g tin Training / 34 th Annual General Meeting & Conference, 2007 Testing s Te Patricia Hamilton, CEO CAIB Inc. 30

Budgetary Expenditure 33% have spent over US $100, 000 on Transaction Monitoring. 34 th Annual General Meeting & Conference, 2007 Patricia Hamilton, CEO CAIB Inc. 31

Specific Use of Budgetary Funds A= Increase in staff B= Enhancements to existing transaction monitoring system C= Implementation of automated transaction monitoring system D= Training E= Conferences F= Other Most respondents reported a combination of methods B, D & E. 34 th Annual General Meeting & Conference, 2007 Patricia Hamilton, CEO CAIB Inc. 32

Methods for indentifying suspicious activity Least Used A= Reliance on employees’ vigilance B= Review of exception reports C= Internally developed transaction systems/exception reports D= Vendor supported automated transaction monitoring system Most respondents (28%) reported a combination of methods A, B & C while 17% reported using all four methods. 34 th Annual General Meeting & Conference, 2007 Patricia Hamilton, CEO CAIB Inc. 33

Policies & Procedures However, 50% of these apply only to the Compliance department. 2/24/2021 Patricia Hamilton 34

To conclude…

Essential Elements of Effective AML 1. Management support, commitment, accountability, “tone at the top” 2. Effective governance structure to oversight line of business functions 3. Comprehensive and actionable policies and procedures to reflect global and country specific requirements 4. Appropriate compliance communication, awareness, reporting, and education plan 5. Process to identify and implement regulatory requirements timely and effectively 34 th Annual General Meeting & Conference, 2007 Patricia Hamilton, CEO CAIB Inc. 36

Essential Elements of Effective AML, cont’d. 6. Monitoring/self-assessment programs to effectively detect violations and weak control systems 7. Reporting and communication processes to ensure the status of significant compliance issues are communicated 8. Tracking process for corrective actions required due to results from monitoring programs, complaints, Internal Audit, and regulatory reports 9. Effective training programs 10. Involvement of compliance function in the development of new products and services 34 th Annual General Meeting & Conference, 2007 Patricia Hamilton, CEO CAIB Inc. 37

Questions?

Caribbean Indigenous Banks Anti-Money Laundering Survey An analysis of the local challenges Patricia Hamilton CEO Caribbean Association of Indigenous Banks Inc.