A new report by Aite Group revealed that only 65% of institutions' AML budgets are aligned with regulatory demands.

AML compliance is recognized as a vital issue by regulators and financial institutions alike, Aite said. But while this generally means that AML receives the necessary attention and resources, there is also a constant evolution in AML compliance strategies and the regulatory demands that drive them, the report found.

As a result, many financial institutions " particularly small institutions " are struggling to keep up with demands.

Alarmingly, Aite found that only 25% of small institutions' budgets are aligned with regulatory demands. Further, 75% of these firms " which averaged $12 billion in assets -- were judged to be in a "stressed" sate, in which evolving expectations outweigh the budget pool available.

Of the respondents categorized as medium-sized (averaging $50 billion in assets), 60% were aligned. Large institution respondents (with assets ranging from $60 billion to $500 billion) were the most aligned, at 88%.

"Institutions are reacting to regulator demands by investing in new systems and processes, but the industry still has a way to go before it can declare an AML victory," said Eva Weber, analyst with Aite Group and author of this report, entitled Trends in Anti-Money Laundering Compliance: Evolving Practices and Strategies.

"AML compliance is a game in which the goal posts are always moving. Since regulators expect institutions to make a good-faith effort to prevent money laundering, the constant evolution of the problem requires a constant evolution of the solutions," Weber added.

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