European Banks Tighten Belts to Fund Compliance Investments
March 04 2019 - 11:29AM
Dow Jones News
By Kristin Broughton
European banks are investing more resources in staff and
technology to spot financial crime following a recent string of
money-laundering scandals. In some cases, they're cutting costs
elsewhere in the enterprise to fund the initiatives.
In recent weeks, ABN Amro Group NV in Amsterdam and Commerzbank
AG in Frankfurt voluntarily disclosed, for the first time, details
about increases in spending on anti-money-laundering compliance.
Amsterdam-based ING Groep NV, meanwhile, said it boosted
investments in its defenses in part by using cash freed up from
expense cuts elsewhere.
Banks with global operations, not just in Europe, have been
spending more on compliance-related technology, including systems
powered by artificial intelligence, and hiring employees with
advanced training in areas such as data science, said Walter Mix,
managing director at Berkeley Research Group, who advises banks on
anti-money-laundering regulations. The investments have put
pressure on banks' bottom lines, he said.
Banks in Europe are under particular pressure to demonstrate
they have strengthened their money-laundering detection tools.
Europe has been rocked by high-profile money-laundering scandals
over the past year, including the disclosure by Denmark's Danske
Bank A/S that it allowed EUR200 billion ($230 billion) in
Russia-linked transactions to flow through a small branch in
Estonia.
Incidents such as these have elevated scrutiny on the systems
European banks are using to monitor transactions and assess risk.
That could prompt more lenders to disclose their compliance
investments in the future, said Robin van den Broek, an analyst
with Mediobanca SpA.
"With the regulator putting more focus on this and reputation
and high fines at risk, I think it makes sense to expect a reaction
in the form of more disclosure," he said.
Regulatory scrutiny was a factor behind ABN Amro's decision to
accelerate its planned investments in customer due diligence, Kees
van Dijkhuizen, the company's chief executive, said during the
bank's earnings call this month.
ABN Amro took an EUR85 million provision during the fourth
quarter to cover the cost of technology and staff that will help
the bank verify customer information and spot suspicious
transactions. That's in addition to at least EUR100 million ABN
Amro had already budgeted for in 2018, according to the
company.
"Down the road this year, we might have other provisions," Mr.
van Dijkhuizen said during the call. Since 2013, ABN has tripled
the number of employees who work on client due diligence, to about
1,000, he said.
Commerzbank, meanwhile, said it has spent an additional EUR600
million on compliance since 2015, when it settled an investigation
by U.S. authorities into allegations of sanctions and
money-laundering violations. The bank agreed to install an
independent monitor as part of the settlement.
The investments, made under the guidance of the bank's U.S.
monitor, have gone toward implementing a more robust model for
managing risks, as well as an enhanced transaction-monitoring and
sanctions-screening system. Commerzbank said it also plans to
invest in automation within its compliance division.
The additional compliance spending was financed in part by
belt-tightening and job cuts elsewhere in the bank, the company
said during a Feb. 13 call with analysts.
"This is a price worth paying and is money well spent," Stephan
Engels, Commerzbank's chief financial officer, said during the
call.
ING's spending on financial-crimes controls has also increased,
as it adds staff to strengthen the systems it uses to verify
customer identities and information, the bank said this month. ING
didn't provide details on costs. Total operating expenses, however,
declined 2% from a year earlier, to EUR2.6 billion.
ING in September paid EUR775 million to settle an investigation
by Dutch prosecutors into alleged failings in its
anti-money-laundering controls.
Write to Kristin Broughton at Kristin.Broughton@wsj.com
(END) Dow Jones Newswires
March 04, 2019 11:14 ET (16:14 GMT)
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