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Authored by:
Katerina Kindyni, Financial Services Sustainability Leader
Ramzi Bou Hamdan, Partner, FinCrime Risk Consulting Leader
Integrate ESG into AML practices for better financial risk management. Explore new paradigms and best practices in our May 2024 report.
In brief
- Aligning operations with customer journeys boosts customer-centricity, strengthens relationships and fosters growth.
- Embracing customer journeys aids in gaining insights, anticipating changes and fostering accountability, providing a competitive edge.
Anew financial risk management paradigm is emerging. Stakeholders increasingly view anti-money laundering (AML) practices as part of the financial system’s overarching environmental, social and governance (ESG) responsibilities. Therein lies an opportunity for institutions to integrate ESG into the AML lifecycle, differentiating themselves from the competition in a noisy marketplace.
Overlapping and correlated risks are creating even greater complexity across an already complicated working world. At EY, our research shows:
- Chief Risk Officers are experiencing increased complexity as risks converge. Some 63% expect fraud risk management to become an even bigger priority over the next three years.
- Chief Executive Officers are making sustainability a priority and factoring it into growth agendas. Nearly 40% prioritize sustainability issues when making capital allocation decisions.
- All the while, disconnects are growing among Chief Financial Officers, investors and other stakeholder groups. Investors have become more likely to favour sustainable, long-term value creation at the expense of short-term earnings.
What does this mean? The landscape is evolving quickly, making this an opportune time for financial institutions to reconsider sustainability priorities more broadly. That said, successfully integrating ESG into the AML lifecycle requires a big-picture vision and a broad approach.
To effectively address this new paradigm, organizations must strategically weave ESG into every stage of the AML lifecycle:
- Governance and oversight
- Risk assessment
- Customer identification procedures and know-your-customer activities
- Customer due diligence
- Enhanced due diligence
- Monitoring
- Reporting
Explore how shifting stakeholder expectations are creating new considerations across financial risk management and best practices for navigating this in the AML context.
Summary
As stakeholders increasingly connect AML to their broader definition of ESG, financial risk management frameworks are transforming. Proactively addressing this shift now can help financial institutions strengthen risk management while setting themselves apart in the eyes of increasingly discerning stakeholders, investors and customers.