Financial Crime Compliance in Africa
By Idrissa Diop, Group Head Compliance, Ecobank
In June 2018, SWIFT published a white paper on Africa’s transaction flows. Using SWIFT data, we’ve mapped trade flows against financial flows, revealing a unique perspective on Africa’s transaction patterns. We look at how transaction banking has changed in Africa over the last five years and identify potential drivers for change and their impact on banks doing business in Africa.
We also spoke to industry leaders in Africa to hear their thoughts on the future of banking on the continent. Here, Idrissa Diop, Group Head of Compliance at Ecobank, talks about the financial crime compliance challenge in Africa.
In the wake of financial crises, cybercrime, money laundering and tougher domestic controls, financial institutions are facing more and more international financial crime compliance regulations. These include the requirements of the Basel Committee, FATF recommendations and the international recommendations to fight tax evasion. Within this new environment, banks are expected to illustrate stronger governance that ensures their ability to finance the economy without exposing institutions, and countries, to unknown risk.
To remain competitive, banks must anticipate and meet customer needs while generating returns that meet investor’s expectations, and remain compliant at the highest level expected by regulatory supervisors.
Banks around the world are expected to:
- Promote good governance though a robust risk framework, including a risk appetite statement which states that the bank has the financial, technical and managerial capacity to manage their risk appetite.
- Implement a strong compliance culture by strengthening compliance capabilities and building more robust regulatory compliance risk management methodologies.
- Establish quality data management to ensure that data is accurate, accessible, consistent, secure and up-to-date. Data is a key asset for banking since it helps identify clients, accounts, balances, transactions, risks, assets, liabilities, income, etc.
The increasing compliance challenge in Africa
In sub-Sahara Africa, supervisors are introducing regulations which align with international standards such as Basel II/ III, anti-money laundering /counter-terrorist financing (AML/CTF) regulations which reflect FATF recommendations, and foreign exchange regulation to protect their economies.
At the same time, African Banks are beginning to offer products to their customers allowing them to transact across the continent. This is reflected in SWIFT’s data, which confirms an increase in intra-African accounts and intra- Africa trade. The increase of intra-African trade has led local supervisors to introduce stronger frameworks with which banks need to comply.
Technology is fuelling change too. The rise of mobile banking in Africa means that financial services are able to reach some of the most remote regions, bringing unbanked populations into the financial system. This enables banks to develop platforms where millions of Africans can access services including healthcare and education. However, supervisors are also introducing specific regulations to address this new development.
All of the above have created a more challenging regulatory environment for African banks.
In the West African Monetary Union region, the Central Bank (BCEAO) has taken important steps to promote financial stability, including the adoption of Basel II and III capital standards and the introduction of consolidated supervision. This has led to increased discipline in terms of capital buffers and prudential ratios.
The Central Bank of Nigeria has also promoted several regulations that have helped local banks adapt their structure to better support the growth of the local economy.
The impact of these challenges on African banks
The introduction of AML/CFT regulations that banks are expected to strictly implement across their network has led to important investments in terms of monitoring systems, hiring of control units and several millions of US dollars declared to local financial intelligence units as being linked to money laundering and terrorist acts.
In this challenging environment, international banks with dealings in Africa are reviewing and rationalising their relationships, a phenomenon known as de-risking.
In this challenging environment, international banks with dealings in Africa are reviewing and rationalising their relationships, a phenomenon known as de-risking. This is reflected in SWIFT data, which shows a drop in the number of foreign correspondent banking relationships in almost all African regions as a result.
The World Bank has reported that global financial institutions are threatening to cut off access to the global financial system for remittance companies and local banks in certain regions, putting them at risk of losing access to the global financial system.
According to the World Bank, if the current trend continues, people and organisations in the more volatile areas of the world or in small countries with limited financial markets could be completely cut off from access to regulated financial services.
African banks at a crossroads
With the combination of increased and tighter regulations imposed on sub-Saharan banks by supervisors, whose main objective is to ensure compliance with international standards, and the de-risking phenomenon, African banks find themselves at a crossroads.
African banks will need to comply with international regulatory requirements while promoting innovation if they want to continue playing the role expected of them: supporting the development of African economies while remaining connected to the global economy.