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Banks treated as criminals for anti-money laundering lapses under the new offence of ‘reckless decision making causing a financial institution to fail’

August 13th, 2014 - Posted by Claire Barker in Anti-Money Laundering

During a news conference announcing the bank's annual results in Hong Kong, Standard Chartered Group Executive Director and Asia CEO Jaspal Bindra said that "banks are being penalised too harshly for lapses in anti-money laundering efforts" – the second senior bank executive this week to voice frustration over what many in the industry see as overzealous regulation.

Executives of top banks will be held increasingly accountable for their actions under new proposals, which indicate that executives could have to wait up to seven years for bonuses to be paid. The Financial Conduct Authority (FCA) and the Bank of England's regulation arm, the Prudential Regulation Authority (PRA), are aiming to have the new rules in force by January. The proposals prescribe the potential for executives to be jailed if their banks fail. Responding to recommendations made by the parliamentary commission on banking standards, the two main City regulators have set out lengthy consultations aimed at framing a new licensing strategy for bankers. Criminal liability will be prescribed under the new offence of 'reckless decision making causing a financial institution to fail'.

"Banks have been asked to play the role of policing anti-money laundering... (but when) we have a lapse, we don't get treated like a policeman. We are treated like a criminal," Standard Chartered Asia CEO Jaspal Bindra said in an interview with Reuters on Thursday.

Lawyers have said that it is unlikely anyone will face jail time despite the attempt to introduce the new criminal offence. Attributing criminal liability to individuals for a bank's decisions will be very difficult to establish and prove, despite the proposed reversal of the burden of proof.

As well as performing the work of their industry against complex regulations, banks around the world now have to play the role of policing anti-money laundering.

Banks are obliged to address third party risk monitoring issues by hiring more compliance staff and embarking on multi-year programmes to make all employees more aware of the importance of sanctions checks and anti-money laundering.

Bankers' work involves much larger sums of money than the majority of people deal with. This means that the consequences of their successes and failures are far more noticeable and emotive. The financial crisis and the impending changes in regulation demonstrates the importance of not only implementing systems that give transparency over customers and suppliers, but of continuing to maintain their effectiveness over time.

End notes

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