Financial institutions have been asked to review their customer accounts for tax-illicit funds. One of the practical difficulties faced by financial institutions is how to determine whether a given pool of funds is fully tax compliant, when even a tax lawyer may be hesitant to make a call, unless he has full visibility of the customer’s other transactions beyond the bank. International guidance on this area is still evolving, and the process to become more proficient in detecting tax-illicit monies will understandably be an iterative one. 18 Nonetheless, we have found the quality of the recent tax risk reviews to be satisfactory, and I like to commend you all for the efforts put in. More importantly, this exercise has raised general awareness among financial institutions, which are now better prepared to manage risks arising from the laundering of proceeds from tax crimes. Arising from the review, a handful of customers may have chosen to close their accounts or even have had their accounts terminated – if they chose not to be subject to the heightened scrutiny. Suspicious Transaction Reports have also been filed in a few cases. Overall, the message is clear and consistent – tax-illicit funds are not welcome here. BIS central bankers’ speeches  3  Partnership with the industry 19 We need to work together to tackle financial crime. At the government level, law enforcement agencies meet regularly with the financial and non-financial sector supervisors to coordinate policy, so that we effectively deter illicit funds as a country.
Still other banks have greatly increased their transaction processing, custody or asset management businesses, in the pursuit of fee income. Looking forward to the next century, I believe we will see major strides in the area that I suggest we call “e-finance”. More banks will venture into the relatively new world of on-line PC banking or will expand electronic bill presentment and paying services. Banks will be motivated to overcome obstacles such as systems incompatibility and consumer privacy concerns, to achieve greater operating efficiencies and to protect their valuable payments franchise. Going forward, on-line purchases and sales of securities by individuals also will continue to increase, producing a growing source of commissions for financial institutions. For most banks, these developments will mean a further increase in the diversity and complexity of risks to which they are exposed, including, but not limited to, credit, market and operational risks. The challenge for these banks will be to develop risk management systems that are rigorous and comprehensive, yet flexible enough to address the newer risks they take on as they expand into less familiar product areas. Today, I would like to highlight these risks and focus on how important it is for banks to integrate their risk management and capital planning processes. Also, I would like to focus on how the changing nature of banking is challenging supervisors to rethink their approach to capital regulation and supervision.