Money laundering: challenges facing the Swiss financial centre

In the fight against organised crime, money laundering and terrorist financing, the Swiss financial centre is a particular focus of attention due to its global importance. In response to the Financial Action Task Force's (FATF) fourth country report on Switzerland in December 2016, the Federal Department of Finance (FDF) conducted an analysis of the published recommendations and weaknesses.

The Federal Council stated that in order to remedy identified weaknesses, the Money Laundering Ordinance of the Swiss Financial Market Supervisory Authority (MLO-FINMA), the Agreement on the Code of Conduct for the Due Diligence of Banks (CDB) and the regulations of the self-regulatory organisations must be amended. The consultation on the partial revision of the AMLO-FINMA has been completed since 16 October 2017. The revision is expected to enter into force in 2019.

The Swiss Bankers Association is planning to amend the current CDB 16 at the same time as the AMLO-FINMA.

Need for action given

The state wants to make financial intermediaries more accountable through regulation: They are to take on a preventive role by checking parties involved and the origin of new funds more comprehensively. This is no easy task, especially as new technologies and digital currencies are playing into the hands of criminals, and cross-border money flows are becoming increasingly difficult to trace.

On the other hand, regulation has a reactive effect on the one hand, as it lags behind technological development.

On the other hand, some banks have deficits with regard to their risk approaches and IT infrastructures. This is shown by the new study "Clarity on Financial Crime in Banking" by KPMG, in which 50 Swiss banks were surveyed on the challenges in the fight against organized crime and money laundering, but also on the regulatory framework.

The study identifies a need for action by Swiss financial intermediaries in six areas:

1. Swiss banks have the opportunity to set a clear example in the consistent prevention and detection of financial crime;
2. They can significantly increase the effectiveness of their risk management by taking institution-specific approaches into account;
3. They can achieve their compliance goals and reduce related costs by taking a dynamic approach and raising employee awareness;
4. They can strengthen their own staff by bringing in external expertise;
5. They can better protect themselves through robust compliance based on a solid corporate culture, appropriate tone at the top, and an effective sanctions system;
6. They can further improve the quality of reports to the Money Laundering Reporting Office Switzerland (MROS) in order to make the fight against organised crime and money laundering even more effective.

More targeted engagement in prevention and identification

A more targeted engagement of Swiss banks in the prevention and identification of criminal financial activities ultimately serves the banks themselves. This includes more accurate risk assessments that take into account a bank's own specific business model and serve to identify and prevent criminal financial activities more effectively.

For more on KPMG's "Clarity on Financial Crime in Banking" study, on the impact of financial crime on Swiss banks, see here