Investor Relations 101

[Tina]

Issue Date: IR Alert - July 21, 2009

Financial Services Executives Recognize Weaknesses In Sanctions Compliance Efforts, According To Deloitte Survey
Multinational organizations are beginning to feel the business need and regulatory imperative to coordinate economic and trade sanctions compliance activities across borders. Forty-six percent of respondents consider sanctions compliance to be a growing concern, and 63 percent say it is consuming more time, money and personnel than ever, according to a Deloitte survey of 388 executives and managers from around the world.

Increasing global regulatory rigor has made the task more pressing. Yet at nearly one in four companies' compliance staff receives training at best, just once every two years. In fact, some of the biggest challenges respondents' companies face in implementing sanctions-related controls are the complexity of screening all of the dimensions of financial transactions (56 percent) and meeting growing regulator expectations (41 percent).

According to the study, titled Facing the Sanctions Challenge in Financial Services, only 50 percent of companies have operationalized what sanctions policies they do have, creating the real possibility that the absence of a robust sanctions compliance program — or an inadequate one — could result in regulatory discipline by the U.S. Office of Foreign Assets Control (OFAC), as well as federal and state regulators and prosecutors.

"As OFAC continues to be more rigorous in its oversight of financial institutions and international regulators simultaneously increase their own vigilance, more organizations are responding to regulatory actions than they had in the past 10 years," said Michael Zeldin, global leader, Anti-Money Laundering/Trade Sanctions Services for Deloitte Financial Advisory Services. "At the same time, financial institutions have to contend with shrinking compliance budgets and headcounts. This is a combination fraught with danger."

The study also revealed some leading practices in sanctions compliance, including:

* Using risk assessments. Companies increasingly are using risk-based approaches to sanctions compliance, especially since OFAC's 2006 Interim Economic Sanctions Enforcement Procedures and the EU Third Money Laundering Directive required that compliance programs be tailored to a bank's risk profile. Thus, sanctions programs including risk assessments ­— an essential first step to a risk-based approach — have become part of industry-leading practices. Of the 44 percent of survey respondents who reported their companies had a well-defined, sanctions-specific compliance program in place, 70 percent were either completing or had completed a formal sanctions risk assessment within the past two years.

* Leveraging information technology. Financial services companies are at the forefront of industries endeavoring to use IT solutions to meet their expanding compliance obligations. In particular, most companies have been deploying IT solutions at the initial detection stage and then manually investigating the alerts generated by those systems. Just 19 percent of respondents work for firms that have fully automated this process, but more than twice as many (52 percent) expect to do so in three years' time. As automation is expected to increase, the number of companies with largely manual processes (especially at the front end) is expected to drop from 37 percent to less than half that (17 percent) in the next three years.

*Taking a global approach. Elements of sanctions compliance — from setting strategy to overseeing lists — can be run at a global, regional or local level. However, a global approach to sanctions compliance seems most popular; 55 percent of respondents' companies set sanctions compliance policy at the global level and 40 percent develop and oversee sanctions compliance and procedures at a global level. More than one-third (39 percent) of financial executives indicated their companies' board and C-suite executives communicate on sanctions compliance, across all geographic regions, coordinating efforts globally.

* Set a zero-tolerance tone at the top. The growing nature and scope of sanctions imperatives highlights the need to create an appropriate culture of compliance.


"Despite a slowly shrinking global economy in recent months, the speed with which money is changing hands throughout the financial services industry and beyond has remained unchanged," said Tim Phillipps, global leader, Forensic & Dispute Services for Deloitte. "Finding a needle the size of a few million laundered dollars in a billion dollar haystack of legitimate transactions can be a challenge for any multinational organization, but it should remain a global priority for management."