AML Compliance: Banks still getting penalized - Why?

As per the newspaper reports, the number of penalties imposed on financial institutions by the RBI in the last 3 years was ₹78.60 crores, i.e. an increase of 88% in this period.

The banking sector, which is the first sector to comply with the AML guidelines, seem to still facing the major wrath of the regulators. However, if we compare with banks across the globe, we have number of similar examples where some banks have been penalized repeatedly in the same or different jurisdictions.

The sheer size and nature of the banking sector makes it major target for fraudsters and money launderers who in turn look for the chinks in the armor.

If we look at the banking/ financial institutions sector, we will see that non-compliance has happened in the following sub sectors:

1. The large full-service banks which are repeatedly found lacking in some areas by the regulator. The major deficiencies are related to KYC guidelines and lack of or delay in reporting suspicious transactions.

2. Co-operative Banks, both urban and rural, have been brought under regulatory scanner more recently. While large number of violations have been noted in this segment, the ticket size of each case is quite small considering their level of transactions.

3. Fintech segment, wherein it is largely believed the focus is on solving problems through technology, often lack a comprehensive risk and compliance team and also lack in knowledge in these areas across the organization.

RESOURCE GAP