Banks have been dealing with the massively increased cost and complexity of regulatory compliance and reporting for almost a decade now. And there seems no end in sight.
This is certainly the case in the cash and custody industries. Regulators around the world have been demanding more and more from banks, while – thanks to digitization, globalization and other factors – the environment has become exponentially more complex. That in turn has increased the complexity of the compliance and reporting landscape. It has also made the due diligence process between correspondent banks far more difficult than it used to be.
Consider for example the Wolfsberg Due Diligence Questionnaire, an early attempt to standardize the client onboarding procedure among correspondent banks. When the Wolfsberg Group published its first AML questionnaire for correspondent banks in 2004, it had 27 questions. In its latest iteration, the broader Wolfsberg Correspondent Banking Due Diligence Questionnaire, the number has increased to some 135.
And it’s still not enough. For the most part, the process remains highly individual, with banks now designing their own questionnaires for specific products and geared to the risk profile of the partner bank. It is also highly manual, tying up large amount of resources to produce the answers and complete the applications.
In today’s environment, such a situation is no longer tenable. If banks are serious about tackling this problem, they will have to collaborate, developing standards to help make these processes more efficient and, where possible, to automate them. Ideally, regulators would also be involved at an early stage to ensure the new utilities are compliant.