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July 24, 2018

The Asia Pacific Region is a broad and very diverse geopolitical place made up of many countries and varying perspectives on just about everything. Not surprising, the topic of anti-money laundering (AML) and counter terrorism finance (CTF) compliance models are not immune from that diversity.  

In September 2017, Business Insider Magazine published “The 20 Most Powerful Financial Cities in the World.” Six of the 20 cities (Shenzhen; Beijing; Shanghai; Tokyo; Singapore; and Hong Kong) included on the list are in Asia, and all but one (Shenzhen, China) were ranked in the top 10.   

In this issue of Raising the Bar, we examine the most compelling challenges that organizations in Asia face in their pursuit of AML and CTF compliance.

Interview Skills and Regular Training are Critically Important

In Asia, a strong AML/CTF compliance foundation begins with sound customer onboarding practices and controls. One of the critical areas that often gets overlooked is the ability to train frontline staff and customer account representatives to conduct interviews. The ability to conduct interviews of potential customers/clients and obtain incredibly important information is a critical component in the customer onboarding process. Often, due to the nature of the onboarding environment, it may produce seemingly insignificant information; however, all information provided by a potential customer should be considered significant until a later review reveals otherwise. Therefore, all frontline personnel involved in the customer onboarding process need to receive interview skills training. Moreover, that training should take place at least twice a year and should focus on question formation/presentation (probative vs. open-ended) as well as learning about deceptive interview response practices. 

Onboarding interviews are complex in nature because they often require structured and unstructured components, and at times may turn investigative in nature (depending upon information developed during the process). This places a tremendous burden on those conducting customer onboarding and emphasizes the critical importance of frontline staff being skilled tacticians. Ideally, conducting interview skills training, at least semi-annually, will greatly improve the efficiency of frontline staff, and the overall effectiveness of the customer Know Your Customer (KYC) processes.

This training benefits Internal Audit personnel as well, so it is a process that could be easily leveraged by multiple departments to enhance their capacity to add value in the risk mitigation process.

Customer Risk-Ranking and the “Blemish Approach”

Understanding the customer risk-ranking process is another challenging aspect of a strong AML/CTF compliance protocol. In Asia, most financial and non-financial institutions employ a risk-based approach to customer onboarding relative to AML/CTF compliance programs; however, the improper application of this process many times brings the unintended result of inaccurate rankings. The consequence associated with this includes placing a greater burden on compliance staff as well as less operational efficiency. Frontline and branch/unit management staff, as well as compliance staff, need to be fully versed in the client/customer risk-ranking process. Too often, the staff will focus on single facts about a customer/client instead of focusing on the entire customer/client.

This practice, sometimes referred to as “the blemish” approach, can lead to inaccurate risk rankings as well as unnecessary de-risking practices. “The blemish” approach occurs when frontline staff find a piece of information (the blemish) that they aren’t quite sure how to contend with, which leads to, at best, an inaccurate risk ranking and, at worst, a declination to onboard a viable client.

Ensuring proper checks and balances within the onboarding process with respect to risk-ranking is key. Frontline and branch management need to get it right, and compliance personnel need a system of quality control to protect against inaccurate risk rankings as well as missed business opportunities.

A Governance Framework is the Roadmap for Success

Another critically important component to building an AML/CTF compliance foundation in Asia lies with the development of a Governance Framework. The fact is that governance drives policy, practice and procedure. It’s the “roadmap” and the policies and procedures are the “turn-by-turn” directions to a destination. It’s a misstep to leave this component to the end of the process, rather, it should be constructed at the creation of an AML/CTF compliance program.

Too often, institutions in Asia and elsewhere look at compliance resource “wish lists,” invest in resources, and then attempt to retrofit governance, policy and procedure to fit the resources. This often takes place after mapping exercises and gap analyses have identified policy, procedure and compliance control issues. Following those types of systemic evaluations, the tendency is to seek additional, innovative resources to augment AML/CTF programs rather than look to holistically upgrade policy, procedure and practice. Instead, the sequencing should include outlining your governance (policy/procedure) needs first and then identifying appropriate resources that fit (enhancing compliance control practices) within the compliance governance model. 

For these reasons, it’s important to use the “roadmap” and “turn-by-turn directions” analogy to properly build AML/CTF resources around governance, policy and procedure instead of the converse.

It’s All About the People

Creating an AML/CTF compliance strategy that emphasizes human capital and talent acquisition is another key, yet often overlooked, component. In Asia, identifying talent often comes by way of “head hunters” and recruiters, and while there’s nothing wrong with that approach, it does pose limitations.  

In a vibrant marketplace like Hong Kong or Singapore, this is the preferred model for identifying talent. However, in Asia, title and compensation are paramount in attracting talent. Shockingly, potential candidates often seek a title capable of conveying their importance relative to a company’s structure, and worthy of honoring a family name even more than total compensation. Of course, compensation (especially in such expensive locations) is extremely important, but if all things are equal between potential employers, title will undoubtedly be the deciding factor.    

Identifying and hiring talent is sometimes the easy part, while developing and retaining talent can sometimes be even more complicated within a competitive marketplace that hungers for upwardly mobile, young talent. Make no mistake, human capital is the motor behind successful AML/CTF compliance programs. One recommendation is that employers look to invest in human capital and hire with the intention of developing and promoting from within instead of looking outside. Again, in Asia, which is an ultra-competitive marketplace, investing in human capital isn’t an easy process, and it requires forward-thinking leadership to promote this concept to foster a competent compliance work force. 


In summation, sometimes the “devil is in the details,” and many KYC and AML/CTF compliance control protocols spend a great deal of time, resources and money identifying technology systems that will dramatically aid AML/CTF compliance program efficiency and effectiveness. However, AML/CTF compliance programs are only as good as the human capital employed/trained to utilize them. Hiring and training staff to operate within the very fluid AML/CTF compliance environment is essential to a successful KYC process. Finally, if institutions or corporates don’t get the risk-ranking right, the entire process forward will most likely be flawed. 

In Asia, these are some of the most compelling challenges that often get overlooked …until there’s a problem. There are other challenges regarding KYC and AML/CTF compliance programs but those outlined above are the cornerstone of the process and require the attention of visionary leaders in relevant industries.