The cost of regulatory compliance for international banks has become too burdensome and has started to impact the market, according to Anthony Fenwick, Citi’s head of AML advisory compliance.
“We’re delighted to have all the digital technology that has come out, and this idea of driving down the cost of compliance,” he said this week at Money 20/20 in Amsterdam. “For us we’re in this business to make money and if we’re not making money we’re not able to service our customers.
“We’re actually getting close to an inflection point where dollar clearing is going to become a difficult business to be in because it’s a utility for large corporate institutions – be it remittances or fund flows around the world – and it’s becoming very concentrated into a handful of institutions. That puts a lot of pressure onto organizations. The fines are getting bigger and the regulatory environment is getting tougher. As commercial industries we need to bring the cost down.”
Fenwick pointed to recent research by the Bank for international Settlements (BIS) - which showed that correspondent banking has declined by as much as 20 percent in the past seven years, to highlight the impact rules around know your customer (KYC), transparency, and rules built to combat financial crime are also having on the behaviour of market participants.
For a bank such as Citi, with operations across multiple jurisdictions and countless banking rules, the complexities involved in compliance have grown significantly in recent times.
“We try our best to be honest. Are we perfect? No. Do we hit all the required regulations around the world? No,” said Fenwick. “But regulators are very keen on themes of regulations. For example if regulators ask a question if you have a thoughtful answer they may disagree with the answer that you give and you might need to change your approach but what they don’t like is when you don’t give any answer at all.
“As long as your answer is thoughtful and it has some kernel of knowledge they’ll accept that even if you have to change your approach.”
At Money 20/20 many new fintech market participants were in attendance, and Citi’s Fenwick had a warning shot for them.
“We work with a lot of new entrants into the payment space and I would say the key thing is if you touch other people’s money it comes with a whole lot of responsibility.”
For Fenwick, the regulatory environment can be mitigated, but interbank relationships must be encouraged.
“The largest banks are going it alone – there’s very little collaboration that takes place between institutions,” he said. “We’re getting to the point that so much money is getting wasted on compliance.
“If you think about a payment process today there’s probably sanction screening at least six or seven times in its journey from one destination to another. There’s so much overcapacity and waste. We need to try to start weeding out the extra processes that we are all doing for so little return,” he added.