Detecting and preventing financial crime – a huge challenge for Swiss banks

in Advisory, Financial Services, 26.06.2018

The global significance of the Swiss financial center has made it a focus of efforts to combat organized crime and money laundering. Banks and public authorities are finding themselves faced with a variety of challenges as a result. A new study by KPMG identifies areas where action needs to be taken.

The government plans to put regulations in place that will increase the accountability of financial intermediaries: they are to play a preventive role by more closely inspecting both the parties involved and the origin of new funds. Not an easy task, especially given the fact that new technologies and digital currencies are playing into the hands of criminals and international flows of money are becoming increasingly difficult to track.

Regulation, by contrast, is more reactive in nature since it lags behind recent technological advances. On the other hand, the risk policies and IT infrastructures of some banks have shortcomings as well.

KPMG’s Clarity on Financial Crime in Banking identifies areas where Swiss financial intermediaries need to take action:

  • More targeted commitment to prevention and identification: Ultimately, Swiss banks would be the ones to benefit from a more targeted commitment toward preventing and identifying criminal financial activities. Current approaches toward monitoring risk, clients and transactions are inadequate to meet the challenges of today. Some banks additionally need to develop tools to effectively implement the respective risk approaches and improve the quality of their client databases which are outdated or insufficiently conclusive in many cases. There is also a need to more effectively calibrate transaction monitoring systems and the use of artificial intelligence.
  • Taking institution-specific risks into account: Generally speaking, little account is taken of institution-specific risks, including those relating to unique features of the banks’ own products and services. Only one in five banks adapts monitoring data for high-risk sectors, whether public or purchased, to its own business and risk profile, and only 10% adapt monitoring data for high-risk countries. There is also a need for further action with respect to adapting sanction lists and factoring them into banks’ risk assessments.
  • External recruitment to strengthen the in-house team: Greater investments in IT and staff are often cited as past investment priorities intended to boost banks’ ability to combat criminal financial activities more effectively: 40% mainly invested in hiring additional staff and 38% invested in their IT infrastructures. These investments are apparently insufficient, as around half of the financial intermediaries surveyed (46%) would like investments in these areas to increase. This concern hints at their ineffectiveness however. Investments in technical support and external recruitment to strengthen the in-house team, on the other hand, are much more promising.
  • Solid compliance culture: Banks need a sound internal framework to counteract the risks of financial crime. After all, they are also exposed to financial risks and damage to their reputation as a result of their own staff’s criminal or negligent behavior. While a strong compliance culture and the “right tone at the top ” are essential here – they are not enough to prevent financial crime on their own.
  • Higher-quality reporting system: Lastly, steps need to be taken to improve the reporting system since banks are responsible for submitting adequate MROS reports while also ensuring a high level of quality that benefits the entire financial center.


How banks must step up the challenge in the fight against financial crime

Get further insights in KPMG’s Clarity on Financial Crime in Banking.



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