The Taiwan Banker

How should domestic financial companies prepare for the APG appraisal at the end of this year, and what should its priorities be? Listen to the professional advice of local assessors.To coordinate all inter-ministerial Anti-Money Laundering (AML) work, the Executive Yuan has set up an AML office for the Asia-Pacific Group on Money Laundering (APG) assessments in Taiwan at the end of this year. From that office, Tsai Pei-Ling (蔡佩玲), a prosecutor transferred from the Ministry of Justice, visited Thailand last year as an APG assessor to take part in front-line AML work. She provided The Taiwan Banker with nine suggestions for how domestic financial practitioners can prepare and their attitude towards the examination for the best effect. It is most important to note that a “defensive attitude” in one’s answers will produce counterproductive results.9 tips to actively demonstrate improvements These nine items include: 1. Written information should be read carefully. Do not show up without having read the materials and answer questions that weren’t asked. 2. In terms of bearing, be confidence, appropriate – neither humble nor pushy. 3. In answering skill questions, avoid giving the appraisers an impression of aggressive or avoidant attitudes, or covering up for your ignorance. 4. Be professional, not vague. Use professional persuasion to convince the appraisers. 5. Take a professional attitude, and request side meetings at any time, based on the situation, to understand the concerns of the evaluation group. 6. Provide supporting materials to the appraisers immediately. 7. Pay attention to accuracy in your words, including their interpretation, to prevent misunderstandings from the use of language. 8. Maintain your stamina and willpower during the two-week assessment period. 9. Gather preparatory information through the media and academic, and let the appraisal team understand you better through transparency.The above recommendations cover the entire examination process, from preparations to on-site examination. Among these, for “defensiveness,” Tsai emphasizes that there is actually a cognitive premise for all work done by the appraisers: they are not perfect. “Precisely because there are imperfections, we must use the evaluation to see where we need to improve, or the results of existing efforts.” Traditional Chinese wisdom says that there are always standard “model answers” to test question, so thinking along the lines that “there are no problems with our AML!” or “everything is fine” is common. She cautions: “these kinds of answers are anathema.” In the opinions of the appraisers, they are probably the least qualified answers. The reviewers recognize that there are frequently contractions and conflicts to a greater or lesser extent between the risk control and business departments of an organization, so “it’s impossible for a company to recognize the importance of AML all over, from top to bottom.” Moreover, when it comes to equipment, the industry is faced with the problem that systems from existing vendors do not conform to current requirements, and must be replaced. In addition, each branch or subsidiary faces different resource constraints, and each one does not necessarily have enough funds to buy more equipment. In the face of these constraints, appraisers more frequently believe that it’s difficult to avoid differences in the degree of implementation between departments or branches, even if a company is doing well in AML.If the practitioner is not to answer directly that everything is going well, then, how about deeply and factually explaining the gaps between different departments or branches due to resources or staff knowledge, and the improvements or countermeasures enacted in response to these deficiencies? The appraisers generally judge someone who fully explain these plans and results to be sincere.Avoid evasion, be preciseAnother situation requiring special attention is not understanding the question, yet pretending to – or else having understood the question, but talking around the subject at hand without ever coming to an answer. Tsai cites an example from her own experiences. One time, a respondent failed to answer the question, but rather began to tell stories, with the effect of talking past the appraisers. She understood that the object of the question had clearly not been implemented, but the respondent, still talking past the appraisers, did not provide the appraisers with any kind of explanation or future improvement plan.For linguistic problems during the exam, due to some terminology differences between Chinese and English, you may be misunderstood if without a precise mastery. Therefore, Tsai recommends that if interviewees cannot use English vocabulary correctly, or completely discuss related work, it’s better to just speak Chinese, working through an interpreter. Chinese may convey content more completely to the appraisers, and will not be misunderstood – but one must ensure beforehand that the interpreter has a precise grasp of all necessary financial vocabulary.Before the exam, candidates must first read all written materials provided. Arriving without having read them first is a big mistake. In addition, both domestic and foreign branches are bound by AML requirements. Interviewees must have a correct understanding to avoid mistakenly answering along the lines that “no domestic branches have problems.”Different standards for recommended inclusion for each sectorMeanwhile, this February, the Financial Securities Commission (FSC) also invited banks, securities, and insurance practitioners to assist financial companies in face-to-face practice interviews. Liu Yan-ling (劉燕玲), Deputy Chief of the Banking Bureau, and Wang Xiang-Heng (王湘衡), Chief of the International Business Division, have both served as APG appraiser supervisors, which is rare in Taiwan. The two participated in the 2017 third round APC assessment, both of them serving in the front line as appraisers. Liu also participated in Taiwan’s preparation for the second round of APG assessments in 2007.Besides Taiwan, the countries being tested during the third round of appraisals this year include the Philippines, Pakistan, and Solomon Islands – four countries in total. According to Liu, APG has never appraised too many countries at once, due to convention and human resource constraints.Liu recalled her participation in Indonesia’s assessment. Within a span of short two weeks, a total of 81 conferences were held, large and small. Aside from some where all appraisers were present, most were held separately. In general, the appraiser group can be divided into legal, law enforcement, and finance experts. Aside from one representative from the APG secretariat, two financial appraisers served as the principal interrogators when interviewing individual financial institutions.As for how financial institutions are selected for interviews, Liu clarified that the process is not “random,” but done through recommendations of representative companies in all financial subsectors from competent authorities to the APG, with the final decisions being made in consultation with APG. In other words, even small and medium enterprises may be chosen, and must still be earnest in their preparations.From APG’s perspective, the size of the financial industry in Taiwan is similar to that of Indonesia. When evaluating Indonesia in 2006 and 2007, four companies were selected; four will likely be selected in Taiwan as well. Comparing each subsector by assets, banking makes up over 50%, and life insurance is around 28%. As for securities, due to differences in business models, turnover volume is more relevant than asset size. Clearly, then, APG will use different standards for each subsector when selecting appraisal targets. In terms of the banking sector, the four banks selected may not necessarily be large state banks: “foreign banks may also be included.” Notably, when APG appraises foreign banks, it may not necessarily look at local subsidiaries of global multinationals, but rather tend towards branches or subsidiaries of non-global foreign banks.APG’s logic here, Wang Xiang-Heng (王湘衡) explains, is that that the head offices of global multinationals frequently rely on their own countries’ AML regulations in managing their subsidiaries or branches. The significance of these subsidiaries or branches would not be great. On the contrary, the performance of local foreign banks from emerging economies better reflects the effectiveness of the local government, or the bank itself, in their AML controls.Weighing language choices, and the necessity of interagency cooperation It’s often discussed whether it’s better to speak English or Chinese for examinations. Here, Liu states outright that effective communication must be taken as a premise, and “conveyance of meaning to the appraisers” is the highest guiding principle. It’s not that English is never good, or that Chinese is better. If the interpreter lacks financial expertise, it may also negatively influence the appraisal.Taking Indonesia as an example, Liu noted that financial institutions like banks, securities dealers, and insurance companies almost all used English in their interviews. Some other non-financial institutions, meanwhile, due to inaccurate interpretation, only expressed after the interviews that the answers the interviewers received reflected mistakes in interpretation. According to APG’s rules, however, any information provided after the examination is not recognized, resulting in errors purely from interpretation which could not be remedied. In the end, therefore, the choice of whether to use English or Chinese should be determined based on one’s own language ability, or else the interpreter’s level of financial expertise. Wang particularly recommends that if one finds themselves making mistakes during the interview, causing misunderstanding by the evaluators, “be sure to rectify the error on the spot - don’t wait until afterwards.” After the appraisers complete their records, changing one’s “testimony,” “retracting one’s confession,” isn’t so easy.In addition to the financial institutions themselves, it’s good to be able to submit a complete transcript of inter-ministerial cooperation in the APG conferences. Liu and Wang both separately mentioned that APG also attaches great importance to “inter-agency cooperation,” (i.e. information sharing, cooperation, and coordination) between all departments participating in AML management, including the Ministry of Justice, Investigation Bureau, Coast Guard, police, FSC, Ministry of the Interior, and Ministry of Economic Affairs. If this is not done, even if the financial institutions do well in the exams, overall APG performance may not be good.The most significant example of this is that is the “non-financial” portion of the third round of APG evaluations. Liu stated that since the non-financial sector’s AML control is still in its infancy, the relevant authorities are unable to provide complete statistical data from the last five years APG as evidence for review. Thus, the AML controls of advanced economies like the U.S., Australia, and Singapore have almost all failed the “non-financial” section, a special phenomenon in the last one or two years of APG assessments.Supplementation from fully validated written evidenceLiu also noted that countries being assessed by APG “must prepare very complete written materials” for the questionnaire. This is a lesson she learned first-hand from the APG secretariat, and it’s also the secretariat’s advice for Taiwan. In quantitative terms, she said, “The APG secretariat has stressed that Malaysia prepared over 2,000 pages of reports. An economy the size of Taiwan should also prepare a similar page count, including five years of cases and materials, to validate the effectiveness of its AML work.”Not only must the competent authorities answer the questions on the APG questionnaire completely, but financial institutions being appraised must also be well-prepared. There will not be time for the institutions being reviewed to make reports during the on-site evaluation, but it is recommended that they still prepare concise materials before the appraisal focusing on their organization and scale, risk profile, and simple flow charts and related instructions on key risk prevention and control measures such as client identity verification, suspicious transaction reporting, and internal controls, along with detailed case studies and performance statistics. The page count should be brief – not a long essay, with the guiding principle of making sure the appraisers understand the basic risk profile and performance of the institution. The examination time for each company will not be less than one hour, but will not exceed 1.5 hours, or at most two hours. In other words, the appraisers will rely on the written materials for many of the questions they don’t have time to ask. More importantly, the materials must be “fully validated,” and show positive results, to assist the appraisers in producing a positive final report which cites relevant evidence.On the questionnaire format, Wang explained that, “there are usually two sets of questionnaires.” The first is for Technical Compliance (TC), or the regulatory side, while the other is Effectiveness Compliance, focusing on the degree of accordance with laws and regulations in business practice.Aside from the questionnaire responses themselves, the annexes, case studies, and evidence, etc., are all extremely important. The statistical data in particular should be as complete as possible, because only sufficient data will give the APG appraisers an objective, quantitative basis to trust institutions’ degree of AML investment.Self-confidence demonstrates commitment to reformAs far as test-taking technique is concerned, Liu and Wang both spoke with one voice: “Self-confidence and enthusiasm are extremely important!” Taking the domestic Mega International Bank as an example, although it was penalized by the NYDFS and the Fed successively due to AML deficiencies prior to 2016, if they can fully expound upon and prove their interim efforts at reform at the APG assessment, so that the appraisers believe that it is committed to organization-wide cultural transformation, they may still achieve good results at the assessment.In addition, no matter the subsector, it is important to find an “appropriate respondent” who understands the business and can give examples fully illustrating the effectiveness of its AML work from practice. Taking banks as an example, OBU or business department personnel, or branch managers, may all be suitable examples for examination, as long as they can competently explain the business. Liu gave the further example of the 2006 Indonesian assessment in which she participated. At that time, a financial company chose a branch manager to explain daily account opening CDD procedures.Taiwan's financial industry has increasingly demonstrated the status of money laundering prevention and control. In fact, in terms of the most important task of financial institutions' AML mechanisms – suspicious transaction reporting –the banking, securities, and insurance sub-sectors have all grown greatly in recent years, including the quantity of reports from the Investigation Bureau. Over the past two years, the FSC has coordinated the efforts of various associations to continuously improve the characterization of suspicious transactions. This is evident from the percentage of cases sent to relevant agencies for investigation – the “case rate.” There are already even some domestic bankers whose success rate has exceeded 50%, demonstrating that with the implementation of AML controls, grasping the key points, rather than reporting randomly, has greatly boosted Taiwan’s AML efforts.