Transaction transparency in Asia: the new paradigm

The recent development of transaction transparency in the payment business has been the increased focus of local regulators and market participants in Asia. As Sathya Ram, Regional Head of Clearing and Foreign Currency Payment Products of Global Payments and Cash Management for Asia-Pacific at HSBC, explains, this has important implications for corporate treasuries, as well more general connotations for economic development across the region.

Transaction - HK

By participating in the Asia/Pacific Group on Money Laundering (APG), many Asian countries[1] have indicated their commitment to the effective implementation and enforcement of internationally accepted standards against money laundering and the financing of terrorism.

The APG is important in allowing member countries to develop effective measures in a collaborative environment[2] in order to bring them up to the internationally accepted standards on Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF). This applies in particular to the Forty Recommendations of the Financial Action Task Force on Money Laundering. The Financial Action Task Force (FATF) and FATF-style regional bodies like the APG are committed to fostering a sense of evolution and development in AML/CTF measures. This is important since the AML/CTF landscape is continually evolving due to new challenges continually emerging that require attention.

Member countries of the FATF and APG are subject to mutual evaluation. Such evaluation is applicable to both new member countries but also to existing member countries. For example, in 2008, FATF provided a set of recommendations to Hong Kong (which has been a member of the FATF since 1991) in a mutual evaluation report. Areas identified for improvement included extending the criminal confiscation regime to terrorist financing, enhancing the effectiveness of reporting of suspicious transactions by Designated Non-Financial Businesses and Professions (DNFBPs), and improving supervision of DNFBPs, for the purpose of strengthening AML/CTF capability.


Economic motivation

Effective measures to mitigate the risks associated with money laundering and terrorist financing will send a positive signal to potential investors, particularly those from overseas, in terms of the financial integrity and stability of the country[3]. In many Asian countries, guidance to support countries and their financial institutions in designing AML/CTF measures that meet the national goal of financial inclusion is also important[4]. These countries are therefore interested in understanding how the FATF’s recommendations can strengthen their AML/CTF programmes, without having to reinvent the wheel. As these countries come closer to implementing the FATF recommendations, they are able to position their markets in a more positive light.


AML/CTF and standardised payment messaging

Whenever a financial institution is intending to implement AML/CTF measures, an appropriate set of due diligence “Know Your Customer” (KYC) processes must be established, together with a process for screening wire transfers. The availability of industry-wide messaging standards may facilitate this objective by mitigating the difficulties parties sometimes have in exchanging wire transfer information in a manner that facilitates screening by different financial institutions.

The adoption of the ISO 20022 XML standard is one way of achieving international standardisation for financial communications in a cost-effective manner, irrespective of business domain. This not only achieves consistency, but also makes it possible for additional information to be transported as part of the financial transaction message, which facilitates transaction screening measures in multiple different financial institutions. It is therefore encouraging that some Asian countries are taking a greater interest in ISO 20022[5].

A standard of this sort also enhances the effectiveness of internal control over whether financial institutions are implementing the necessary AML/CTF measures appropriately; it becomes relatively straightforward to check that each entity in a transaction chain is passing on all the information that will enable the next entity to conduct the necessary screening. The standardisation of messaging will make it easier to identify which information will be mandatory in a payment message to facilitate AML/CTF measures, such as originator/beneficiary information (name and address, etc.) and purpose of payment. This standardisation also helps end customers, especially non-bank financial institutions with regulatory obligations such as fund managers and investment brokers, to determine the source and purpose of payments quickly.


Who pays, who adds value

Inevitably, improving AML/CTF measures in Asia incurs an attendant cost. Banks may pass this on to clients in transaction charges, or may in certain circumstances opt to absorb it themselves. However, there is an opportunity for banks to amortise this cost by extending their enhanced AML/CTF measures as a service to clients. If a bank is able to convert the additional information arising from AML/CTF activity into a value-added service for the benefit of its clients, information modelling of better quality data could be used for multiple purposes, ranging from business intelligence to fraud prevention. This value-added service would not only benefit large corporates with Enterprise Resource Planning (ERP) systems, but also mid-market and small corporations.

If banks are able to obtain the full range of data for transaction screening purposes from a standard format (such as ISO 20022) and pass it on intact to the next stage, this would represent a significant advance on the data transmission processes currently used in many financial markets.

Corporates using ERP systems will also benefit by being able to convert payment information quickly into tailored reports. These could cover multiple areas, such as points of payment origination, corridors where the business is now more/less active, markets with high levels of repeat transactions, and markets where there are opportunities for the optimisation of transaction fees. Such enriched data is also valuable for control and surveillance purposes, such as by enabling corporates to flag and block potentially suspicious transactions before they are actually executed[6].


Purpose of payment monitoring

Efficient transaction monitoring makes it possible to discern the purpose of payments and whether they are appropriate to the businesses involved or whether there may be some suspicious aspect to them.

Again, this is an area where common standards would be welcome. For example, in India stringent foreign exchange controls include a granular standard for any incoming foreign currency payments covering details of the payee, the relationship with the recipient and the nature of the transaction. Scaling something like this up to an international standard and codifying all the various data elements for efficient automated screening would not be easy, but it would offer very substantial benefits. In addition to improving the effectiveness of AML/CTF measures, this would also be of value at a macro level for matters such as planning payment system changes or economic analysis of a country's business sectors.


Domestic payments and transaction screening

Domestic payments add a further layer of complexity to the process of transaction screening. While the electronic nature of international wire transfers makes screening relatively straightforward, the same certainly cannot be said for cheques, demand drafts or Automated Clearing House (ACH) bulk file data. For countries with a large physical cash economy, where a lot of citizens and smaller businesses do not have bank accounts, cash becomes the key medium of exchange in doing business which is an even greater challenge to market participants in terms of combating AML/CTF.


Conclusion: more work, but also more opportunity

It is easy to assume that the evolution of AML/CTF and the increasing number of FATF member jurisdictions in Asia will have negative connotations for financial institutions and corporate treasuries by increasing the workload and cost associated with payment processing. However, AML/CTF measures, such as the FATF recommendations for banks to record wire transfer information, also provide a means to collect and transmit more granular and consistent financial data.

The availability of such extended data items within the payment message would enable financial institutions and corporations to develop data modelling tools to analyse payment traffic in an effective way, for both business development and data processing efficiencies. However, for countries in Asia looking to expand the usage of financial infrastructure to address the needs of end consumers and corporations, the main challenge remains the transmission of rich data throughout the payment chain in a consistent way. ISO 20022 XML standards can facilitate this by standardising the information provided by all parties within the payment chain and enhancing transaction transparency.


[1] “Members”, APG,

[2] “Asia/Pacific Group on Money Laundering”, FATF/OECD,

[3] “The IMF and the Fight Against Money Laundering and the Financing of Terrorism”, IMF, September 5, 2014,

[4] “Financial inclusion”, APG,

[5] “Thailand adopts ISO 20022 for faster payments“, October 7, 2013,,thailand-adopts-iso20022-for-faster-payments.aspx and "ISO 20022: the beginning of the future?", Banking Technology, November 17, 2014,

[6] The Canadian Payments Association outlines the benefits of ISO 20022 over SWIFT. “Mapping” and “Truncation”, CPA, February 2009,




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