MANAGING TRADE COMPLIANCE SCREENING
R&C: Could you explain why it has become so important for financial institutions (FIs) to actively detect red flags in trade transactions? To what extent have the associated risks increased?
Young: Detecting trade risks is very much about reputation. Financial institutions (FIs) are increasingly conscious about their public profile, particularly as it affects larger institutions which allocate capital, such as pension funds and sovereign wealth funds. Many of these allocators are public bodies that cannot afford to have any aspersions cast on their trustworthiness. When trusting someone with a billion dollars of capital, there can be absolutely no question about their behaviour. From an FI’s point of view, it is very important to stay within regulations and avoid fines. But what hurts most is when they hit the headlines for the wrong reasons. In such circumstances, institutional investors may perceive any bad publicity as a red flag, rethink their allocations and move money away from the FI. Some institutions have lost hundreds of millions, sometimes billions, in the space of a few days as the result of a scandal. Although they may actually be squeaky clean, mud sticks and investors will not come back immediately. Reputation is paramount to FIs, and once it is damaged, it is nearly impossible to regain the trust of investors.
Apr-Jun 2019 Issue