MADRID – European banks are investing more resources in staff and technology to spot financial crime following a recent string of money-laundering scandals, and in some cases, they are cutting costs elsewhere in the enterprise to fund the initiatives.
In recent weeks, ABN Amro Group NV in Amsterdam and Commerzbank AG in Frankfurt voluntarily disclosed, for the first time, details about increases in spending on anti-money-laundering compliance.
Amsterdam-based ING Groep NV, meanwhile, said it boosted investments in its defenses in part by using cash freed up from expense cuts elsewhere.
Banks with global operations, not just in Europe, have been spending more on compliance-related technology, including systems powered by artificial intelligence, and hiring employees with advanced training in areas such as data science, said Walter Mix, managing director at Berkeley Research Group, who advises banks on anti-money-laundering regulations.
The investments have put pressure on banks’ bottom lines, he said.
Banks in Europe are under particular pressure to demonstrate they have strengthened their money-laundering detection tools.
Europe has been rocked by high-profile money-laundering scandals over the past year, including the disclosure by Denmark’s Danske Bank A/S that it allowed 200 billion euros ($230 billion) in Russia-linked transactions to flow through a small branch in Estonia.
Incidents such as these have elevated scrutiny on the systems European banks are using to monitor transactions and assess risk. That could prompt more lenders to disclose their compliance investments in the future, said Robin van den Broek, an analyst with Mediobanca SpA.
“With the regulator putting more focus on this and reputation and high fines at risk, I think it makes sense to expect a reaction in the form of more disclosure,” he said.
Regulatory scrutiny was a factor behind ABN Amro’s decision to accelerate its planned investments in customer due diligence, Kees van Dijkhuizen, the company’s chief executive, said during the bank’s earnings call this month.
ABN Amro took an 85 million euros provision during the fourth quarter to cover the cost of technology and staff that will help the bank verify customer information and spot suspicious transactions. That is in addition to at least 100 million euros ABN Amro had already budgeted for in 2018, according to the company.
“Down the road this year, we might have other provisions,” Van Dijkhuizen said during the call. Since 2013, ABN has tripled the number of employees who work on client due diligence, to about 1,000, he said.
Commerzbank, meanwhile, said it has spent an additional 600 million euros on compliance since 2015, when it settled an investigation by United States authorities into allegations of sanctions and money-laundering violations. The bank agreed to install an independent monitor as part of the settlement.
The investments, made under the guidance of the bank’s US monitor, have gone toward implementing a more robust model for managing risks, as well as an enhanced transaction-monitoring and sanctions-screening system. Commerzbank said it also plans to invest in automation within its compliance division.
The additional compliance spending was financed in part by belt-tightening and job cuts elsewhere in the bank, the company said during a Feb. 13 call with analysts.
“This is a price worth paying and is money well spent,” Stephan Engels, Commerzbank’s chief financial officer, said during the call.
ING’s spending on financial-crimes controls has also increased, as it adds staff to strengthen the systems it uses to verify customer identities and information, the bank said this month. ING did not provide details on costs.
Total operating expenses, however, declined 2 percent from a year earlier, to 2.6 billion euros.
ING in September paid 775 million euros to settle an investigation by Dutch prosecutors into alleged failings in its anti-money-laundering controls.