Private Banking and Wealth Management Red Flags

Matthias Verbeke - August 4, 2015

A lot has been published on AML red flags for the banking industry. Many typologies exists, going from the FATF recommendation to standard detection scenarios provided by AML vendors or consultants. But how much of this is applicable to the private banking and wealth management industry?

At a time where regulators are stepping up their investigations in private banking, where tax evasion reporting singles out private banking as a high risk area, where most larger institutions wishing to serve their HNWI’s are nervous about damaging their reputation, there seems to be a growing need for circumventing this risk taking into account the specificities of the industry, and the risk indicators which are appropriate for this type of clientele and its activities.

Whilst some of the risk indicators are applicable across the financial industry, it looks like particular attention should be given to:

  • A deeper monitoring of the holistic customer: the customer and his family, but also the service providers, the counterparties and the relationship managers should be part of monitoring, and risk-rated individually but also in the context of their holistic relationships and networks of activity
  • Closer monitoring of stated information on origin of funds and purpose of funds vs day-to-day incoming and outgoing activities
  • Analysis of asset classes and financial instruments used in relation the money laundering risk they encompass
  • More detailed profiling of the individual customer, case-by-case setting of alarm thresholds
  • Market manipulation and unauthorized trading in combination with money laundering monitoring
  • Analysis of advice provided, trespassing of Chinese walls by employees
  • Portfolio performance volatility
  • Counterparties analysis
  • High risk corporate structures
  • Negative news
  • Peer group analysis and deviation of performance, asset classes, transaction volumes, originating and beneficiary countries vs similar customers
  • Instruments risk rating
  • Velocity of incoming and outgoing funds

We would like to open a discussion on how peers in the industry see this, and what the expectation is for the future.

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