Dutch Regulator Using Statistical Analysis to Assess MSB Compliance: Official

The central bank of the Netherlands is conducting statistical analysis on suspicious transaction reports filed by money services businesses to assess their compliance with anti-money laundering rules and determine if additional guidance is needed, according to a senior regulator.

Remy Jansen, head of the central bank’s integrity department, said AML analysts are comparing data provided by the Dutch Financial Intelligence Unit, or FIU, on the number of STRs submitted by MSBs against regulatory estimates of how many should have been filed based on each firm’s particular risk level.

The first analyses are scheduled to be completed by the end of this year.

The risk profiles used to make the comparison draw on 7 years-worth of quarterly reports Dutch MSBs have filed on the quantity, values, originators and beneficiaries of remittances, and are updated via algorithms when new data is received, Jansen said in an interview with ACAMS reporter Koos Couvée.

What follows is an edited transcript of their conversation.

Why was this project launched and how does it work?

We are responsible for supervising Dutch-licensed MSBs and foreign MSBs with agents in the Netherlands. When we started the project seven years ago, we struggled with the fact that there were 15 different companies with around 1,200 agents, as it was quite difficult with a relatively limited capacity to have a good view of the whole sector.

This resulted in the launch of bulk transaction analysis. MSBs report roughly three million transactions a year from a combined total of one million customers remitting money between 212 countries, with a total value of outgoing transactions of almost €900 million a year.

Analyzing these transactions is a good way for us to really identify risks of breaching AML or sanctions rules. This does not mean we can or will take action immediately, but it can lead to more in-depth investigations into a particular company or agent.

If an investigation confirms there are problems, we intervene. Since the project’s inception in 2011, we have closed down 20 agents, imposed a fine on one MSB and revoked the licenses of two other firms.

How do you build up a firm’s risk profile?

Using algorithms, we build up a profile of each MSB and its agents, and the risks are mapped out based on the number of high-risk countries or clients linked to its transactions or the amount of unusual transactions each quarter. The main purpose is to gain insight into suspicious patterns and thereby provide better guidance to firms.

Risk analyses of an MSB’s agents form the basis of its risk profile. This allows us to pinpoint where there are potential problems and where we need to target our supervisory attention, and where to conduct onsite investigations to verify compliance with AML and sanctions legislation.

How is the project developing?

We are constantly looking for new ways to use the data we hold. We have started receiving information from the FIU about the reporting behaviors of financial institutions, including MSBs. We are increasingly mapping this information onto our own datasets to see what the reporting behavior of a particular MSB is compared to what we see in its unusual transactions.

That is not to say that we can definitely say the transactions are suspicious, but it’s a case of questioning the MSB about it and seeing to what extent they comply with their reporting obligations.

This is already yielding results, but as we become more familiar with the FIU’s data and better combine its information with ours, we will have better results.

We want to improve the reporting behavior of firms. We hope to detect where there is still insufficient reporting, but ultimately we hope to see the sector reporting suspicious transactions very well.

Has the project led to banks becoming more willing to serve MSBs?

I think at the moment de-risking is partly due to the risk profile of the sector itself in the Netherlands, and negative attention the sector has received as a result of a number of investigations into agents launched by Dutch police last year.

However, as a result of our smarter supervisory approach, confidence in the MSB sector can grow. Generally, it seems logical that if a firm can show it has its house in order, it provides some comfort for another firm to do business with it.

What are you focusing on as a supervisor in terms of risks specific to the MSB sector?

With regards to terrorist financing risks, our attention is focused on charities and foundations. We will look at the extent to which funds go to foundations and appear to be legitimate transactions. In addition, because terrorists move funds across borders, high-risk countries remains a factor for us to look at.

However, it must be stressed that our approach is not to detect terrorism financing, because we are not a law enforcement agency, but above all to test whether institutions fulfill their gatekeeper function in respect of clients and transactions. We are focused on identifying ways to better challenge MSBs and their agents about their systems and controls.

How do you rate MSB compliance with the Dutch AML regime?

We still see certain problems, some of which we have highlighted in guidance on transaction-monitoring issued last year. We still see qualitative differences between MSBs, but we are seeing steps in the right direction: firms are thinking much more deeply about the risks they face and whether or not they want to accept some of them, as well as the controls they need to put in place to deal with those risks.

When it comes to things like to customer due diligence, transaction monitoring, staff training and employee background checks, we see positive steps are being taken, but I dare say the sector is not there yet.

Topics : Anti-money laundering , Counterterrorist Financing , Money Services Businesses
Source: Netherlands
Document Date: April 12, 2018