22. March 2022

Collective Action in banking: The Wolfsberg Group’s role in a fast-evolving industry

Château Wolfsberg, scene of the inaugural meeting of the Wolfsberg Group
A beautiful setting for serious work: the Wolfsberg Group started life at Château Wolfsberg in northeast Switzerland in 2000.

The Wolfsberg Group – an association of 13 global banks that develops frameworks and guidance to manage financial crime risks – became an independent legal entity in October 2021. Its new home is at the Basel Institute on Governance headquarters in Switzerland.

We are proud to host what continues to be a ground-breaking Collective Action against financial crime. Our role builds on our support for the Group over the last 21 years, since its first ever meeting at the historic Swiss castle, Château Wolfsberg.

The Wolfsberg Group’s new Executive Secretary, Alan Ketley, has been involved with the Group for most of his 19-year career in anti-money laundering compliance at European, US and Japanese banks. In this short interview, Alan explains how the Wolfsberg Group evolved, some important ways it has contributed to global financial crime risk management, and its members’ plans for the future.

The Wolfsberg Group is already an influential voice on the management of financial crime risks in banking – what are the benefits of becoming an independent legal entity?

The Wolfsberg Group has seen sustained and committed collaboration from the members ever since our first meeting in 2000, even without being a formal entity.

Since publishing our first standard – the Wolfsberg Anti-Money Laundering (AML) Principles for Private Banking, revised most recently in 2012  – we have issued numerous principles, standards, guidance documents, questionnaires and FAQs on a wide range of topics relevant to know-your-customer (KYC), anti-money laundering (AML) and counter financing of terrorism (CFT) in the banking sector.

Until October, the Secretariat function was housed in one of its member banks (first UBS and then HSBC) and Tracy Paradise, of HSBC, provided fantastic leadership as Executive Secretary for 18 years. Yet establishing ourselves as a legal entity creates a more solid, sustainable and independent platform to consolidate our work for the future.

Our new formal independence will help us to continue to act as a credible and authoritative private-sector voice in policy circles, and to strengthen the impact of our guidance on financial crime risk management among the 30,000 or so banks that exist around the world.

Why did you decide to house your Secretariat at the Basel Institute?

The Basel Institute is a natural home for the Wolfsberg Group. The Institute’s President Mark Pieth was present at the very first meeting of banks and civil society representatives. Hans-Peter Bauer, a co-founder of the Wolfsberg Group, is a former Board member of the Basel Institute and senior advisor to the Basel AML Index and related matters.

Importantly, the Basel Institute’s Collective Action team has continued to provide invaluable support and guidance to the Group during the last 21 years, including attending our annual forum and contributing substantively to some of the earlier documents. It has been an especially close relationship in the last few months as the Institute has taken on HR, IT and Finance Department support for the Wolfsberg Group, which has two staff located at the Steinenring office.

Who is in the Group and how do you interact?

The Wolfsberg Group represents 13 global banks, as listed on our website. Those sitting around the table at our quarterly meetings are generally the heads of the banks’ financial crime compliance programmes and their deputies.

This size and seniority – 26 individuals with strong practical experience and decision-making power, plus the Secretariat – is our sweet spot right now. This is partly for practical reasons. Decisions are consensus-based, and members commit to aligning their own banks’ compliance programmes in accordance with the standards and guidance that we publish.

On a relationship level, Collective Action is all about trust and open discussion of shared problems, which you can achieve in this kind of collegial environment. Our meetings are always subject to strict competition law guidelines and do not include business staff, vendors, consultants or the press. The publications and comment letters we provide are focused on making financial crime compliance more effective and clearer, as befits an organisation of practitioners developing guidance for other practitioners and providing expert input to regulators and standard setters.

What achievements stand out over the last 21 years?

It seems incredible to say this now, with the close public and policy attention on banks and money laundering, and the billions of dollars of resources that banks spend every year on financial crime compliance programmes. But back in 2000, when the Group first met, I believe this was the first time that a group of bank representatives got together and acknowledged the benefit of collaborating to protect themselves and society from financial crime risks, rather than competing on the basis of looser compliance standards.

The Collective Action approach was also innovative back then. It has since become a globally recognised tool to address corruption challenges in and with the private sector, in large part thanks to the Basel Institute’s work in this area. But none of those at Château Wolfsberg thought of it as Collective Action – the members were purely focused on hammering out the Private Banking Principles and did not expect the collaboration to continue after the press conference in Zurich at which they were announced.

But continuing to interact in a sustained and controlled way over the next 20 years has allowed the Wolfsberg Group to shift the needle in some important matters affecting global financial crime risk management.

For example?

One example is our Trade Finance Principles, which outlines the role of financial institutions in managing processes to address financial crime risks associated with trade finance activities. The Principles also aid compliance with sanctions, embargoes and UN requirements on the non-proliferation of weapons of mass destruction. We have updated these most recently in 2019, in cooperation with the International Chamber of Commerce and Bankers Association for Finance and Trade (BAFT). Several countries reference these in their regulations.

Another is our Correspondent Banking Due Diligence Questionnaire or CBDDQ, the successor to the Wolfsberg AML Questionnaire. This interview with Financial Crime News explains the history and evolution of the questionnaire, which seeks to harmonise and increase the effectiveness of due diligence in correspondent banking relationships. After a complete update in 2016–18, and the effort and dedication of a standing committee, the questionnaire expanded from 28 to 110 questions. This expansion partly reflects the evolution of financial crime compliance since its first edition in 2004. as well expanding coverage from AML to include sanctions, anti-bribery and corruption, and other elements of a financial crime compliance programme.

The CBDDQ is now widely accepted by policy entities and banks as the de facto industry standard for reasonable (not minimum) due diligence in higher-risk correspondent banking relationships. Its accompanying guidance, FAQs, videos and other training materials provide a useful reference to banks in this area, especially smaller institutions with fewer internal compliance resources.

How else does the Wolfsberg Group contribute to financial crime risk management?

We also engage in dialogue with public-sector entities and policymakers. This includes submitting comments on behalf of the Wolfsberg Group to public consultations on changes to financial crime regulation, for example those issued by the Financial Action Task Force, the Financial Stability Board, the EU, UK and FinCEN. Our aim is to ensure that regulations on financial crime are as effective as possible and we have sought to define what “effectiveness” means. Thanks to our industry expertise, we can also identify when new policies might have unintended consequences.

As an aside, when the Wolfsberg Group first engaged in this form of policy dialogue and consultation (on the risk-based approach in 2004­–2005) it was in fact the first time that the FATF had consulted with the private sector at all.

Looking ahead, financial crimes facing the banking sector have become increasingly complex, and the space is more and more contested. There are still lots of open questions in the financial crime sphere in which the Wolfsberg Group, through our discussions and contributions, can play a highly relevant role.

What’s on the agenda now?

The agenda is set by members, so priorities depend on what we are seeing on the ground.

Some topics never go away – correspondent banking and payment transparency continue to require close attention.

The rise of new payment methods, including virtual assets, is also a hot topic, especially as regards payment service providers that are not regulated the same way as banks. This is not least because of the risk of dirty money flowing from the highly regulated banking sector to differently or unregulated new payment service providers.

Environmental, social and governance (ESG) topics are also at the forefront of attention these days. The movement of money relating to crimes like trafficking in humans, wildlife, timber, etc., has long been illegal. Many of these problems are complex and really need Collective Action to treat them at source, involving all stakeholders including governments, financial institutions, other private-sector firms and civil society.

The concept of “effectiveness” is one that Wolfsberg will continue to pursue. This includes continuing efforts to define what it means, and by giving examples of where current practices are overly focused on technical compliance rather than the outcomes. We will also continue to submit responses to competent authorities as they seek to revise their thinking, such as our response to the US financial intelligence unit (FinCEN)’s request for information on how to modernise the country’s AML/CFT regime.

Looking ahead

One question always on the agenda: “What keeps you up at night?” This question helps us keep a forward-looking approach. Criminals who engage in financial crime are smart. They read the same guidance documents and press releases. They pay attention to industry developments and have a strong incentive to evolve fast.

We believe the Wolfsberg Group, as an independent legal entity, will continue to play an important role in setting standards that help banks to address the risks of financial crime. It will also continue to provide a forum for key regulators to join the dialogue. We all need to keep up with the ongoing evolutions in the financial sector and contribute to building a harmonised, committed approach to financial crime risks.

2