Higher cost to implement BNM’s strict compliance rulings

All reporting institutions must invest in compliance resources, including having a compliance officer at branches


BANK Negara Malaysia’s (BNM) reporting institutions, especially insurance operators, Lembaga Tabung Haji (TH) and money services, will incur higher operating cost to comply with the central bank’s money laundering rulings.

The central bank recently released comprehensive guidelines on anti-money laundering and countering financing of terrorism (AML/CFT) to stem illegal transfers.

The strict guidelines, impacting the central bank’s reporting institutions — all licensed banks, insurance and takaful operators, TH and money services businesses — were effective Jan 1 this year.

Under the new rules, all reporting institutions must invest in compliance resources, including having a compliance officer at branches and building a management information system for tracking, flagging, reporting and rejecting transactions related to dirty money.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said reporting institutions, including banks, will incur a higher regulatory cost as they are required to enhance their compliance team.

“Or the banks would face the risks of being fined by the regulators,” he told The Malaysian Reserve (TMR).

Banks generally have systems to report AML/CFT infringements to the central bank. Lenders, including Islamic banks, already have compliance personnel, but the depth varies between financial institutions.

But the recently released guidelines will demand financial institutions to invest more in compliance, an expensive overhead cost for lenders as they try to trim expenses to achieve a higher profit.

TH, which begins to report its deposit-taking activities to the central bank, will have to invest even more, including putting compliance officers at all its branches.

The guidelines also stressed on politically exposed persons, their family members and associates, a component which would require meticulous vetting.

Mohd Afzanizam said despite the higher cost, the improvement in compliance would create job opportunities in the banking industry and such roles are already seeing higher demand.

“This would help in the creation of high paying and quality jobs,” he added.

Another economist, who spoke on condition of anonymity, said the compliance ruling enhancements would help banks reduce fraudulent transactions and bring a positive impact to the banks’ operational cost.

“A strong compliance and operating system can reduce frauds and help banks’ operational costs, especially if there is a breach and they are slapped with a heavy fine by BNM,” said the economist.

The compliance officer will be the reference point for AML/CFT matters within the reporting institution, including implementation of related policies and effective implementation of procedures, especially customer due diligence.

MIDF Amanah Investment Bank Bhd senior analyst Imran Yassin Yusof said the higher compliance cost would not be too excessive for banks.

“They already have compliance officers. Everything would add to the cost, but it would not be detrimental to the banks,” he said.