Cloud Cover for Indian Financial Institutions Reeling Under Cobrapost's KYC, Money Laundering Allegations

By CEO, Divas Software | Last Updated: 19 July 2013

Part of the Problem
Cobrapost’s recent money laundering allegations against almost all the top private, public sector commercial banks and life insurance companies, point to a systemic problem with the financial sector in India. This has been now corroborated by RBI’s investigation report, leaked to Times of India, wherein RBI has found that usage of dummy PAN and identity cards of unknown NROs, unauthorized gold sales and non-compliance to know your customer norms are rampant among banks. In a country where corruption among politicians seems to be boiling over, while bureaucrats run regulators are in a denial mode, financial institution’s senior management seems to be taking big hit on their personal and institutional reputation.

Global Watch-lists Screening

Global Opinions & Expected Actions
There is a tsunami of global opinions that is getting formed against bribery, corruption, money laundering and tax havens, around the world. This is not only led by the regulators of developed nations but also the global journalists’ syndicates such as The International Consortium of Investigative Journalists and independent investigative journalists of the Cobrapost’s genre.

It is highly likely that soon Indian courts are likely to take note of this rot in the system and pass strictures to the regulators and government of the day to make the financial sector comply with Prevention of Money Laundering Act in letter and spirit. Globally, countries such as the USA and the UK could even go to the extent of launching their independent investigations on overseas operations of these Indian financial institutions, penalizing them heavily and subsequently black-listing them entirely.

Way Forward for Indian Financial Institutions
Enough has been written, spoken and fingers pointed at, surrounding the above episodes. It may be a good time to explore if we can find practical solutions in the short run, while long term systemic changes are brought about in India by RBI, IRDA and the Government.

This time round, it would certainly be a mistake to conclude that these issues would be swept under the carpet and things would return to business as usual. It may be good time for the senior management of financial institutions in India to think of ways to protect their institutions’ and their own reputation from this onslaught of white collar crime that is taking place right at their door-steps.

They ought to put KYC+AML+CFT systems and processes in place, which would ensure proper on-boarding of customers and detection of potential money laundering activities even before these transactions occur. Their existing transaction monitoring and anti money laundering systems that are dependent and tightly integrated to their core banking or insurance solutions are outdated and can detect money laundering only after the such transactions have occurred. These systems are important to detect larger and fairly apparent money laundering schemes orchestrated by a single or group of individuals in a financial institution.

But the existing reactive monitoring systems need proactive newer technologies that would streamline the processes right from the junior most branch staff to, relationship managers, branch managers, compliance team, senior management and all the way up to the CEO of a financial institution. These institution wide technology driven processes can only be effective, if these are open to access from anywhere and from any device by the supervising managers under the constant oversight of senior management on the constant move, between offices, airports and international economic event venues. In today’s times these technologies ought to be cost effective, so that their deployment does not cost a financial institution it’s own fortune.

Cloud Cover as Part of the Solution
The proactive newer technology options therefore worth considering by a financial institution are Cloud based KYC Software-as-a-Service (SaaS) applications. Among these Cloud based SaaS applications, the ones suited would be those that offer open enough architecture to be able to easily integrate with the existing customer facing applications, and existing core and transaction monitoring AML systems. Such an integrated hybrid technology platform of data-center housed core banking or insurance solutions lightly integrated with Cloud based KYC SaaS Software could be an answer to the current ill defined process linked problems faced by Indian financial institutions.

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