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Financial Crime 2021: A Global Perspective

 

Rosalynd Smyth

Executive Director - Compliance

Published: Friday 30 April 2021

 

Despite the ongoing pandemic; regulators, global watchdogs, law enforcement and financial crime professionals have shown no signs of slowing down in their fight against financial crime. In fact, the uncertain and complex climate as a result of COVID, has created new opportunities for criminals.

Not only is large scale fraud and corruption on the rise, the “good guys” must find new ways to detect abuse of the financial system and meet their regulatory obligations in an increasingly remote world. So, what more is needed? Think information, automation, cooperation. 


Strides are certainly being taken by governmental, regulatory and law enforcement bodies across the globe to close information gaps that prevents the industry from being truly successful in fighting financial crime. We have seen the roll out of beneficial owner registries in countries that were once considered secretive, including Cyprus. Information sharing among financial institutions on potentially suspicious transactions is being pioneered by the Netherlands and the European Commission is actively working on a 5-year roadmap of legislative proposals and initiatives to help member states in their fight against financial crime. The introduction of the AML Act 2020 and the Corporate Transparency Act in the United States can be deemed the most signification piece of legislation since the USA PATRIOT ACT was introduced in 2001, and once again focus is being placed on increased cooperation and information sharing. 
 

Source: Risk.net

While all this progress is much needed and welcomed by the industry, we as financial crime fighters need the information sharing to be a two-way street. We can debate the effectiveness of the current UK SAR regime and the recent negative press brought about by the Wikileaks revelations against the financial institutions. However, one thing remains clear to me: despite all the bad press the banks have received, I truly believe they are trying their best to uphold their side of the bargain. Law enforcement on the other side must share concerns and suspicions with the banks in parallel, giving access to intelligence that the banks simply do not have. This is especially important as organised crime groups become more global in nature and to help prevent terrorist attacks.  

 

Financial crime compliance costs continue to increase exponentially, with estimations suggesting a £130billion spend by global financial institutions per annum. Over recent years, I believe the industry has somewhat moved away from applying a true risk-based approach; with the continuation of large-scale remediation efforts and “reinventing the wheel” at every periodic refresh, paired with increased reluctance to facilitate or accept perceived policy exceptions. Whilst I acknowledge it is extremely important to know your client and corroborate information via reliable sources, one needs to ensure that focus on documentation gathering does not divert attention away from the wider risk assessment review of the client.

 

Mark Steward (Executive Director of Enforcement and Market Oversight for the Financial Conduct Authority) has recently highlighted “the importance of purposeful anti money laundering controls” and ensuring that they do not become over-elaborate and lose their meaning. I believe we must continue focusing on a data driven approach; data maintenance and mining will be key to successful ‘Perpetual KYC’, which will throw up anomalies and changes real-time. In parallel, KYC and financial crime teams will need to be highly skilled and continually trained to ensure clients are monitored appropriately and holistically, moving away from separate due diligence and transactional reviews, and focusing more on behavioural patterns and what looks and feels right for any particular client. 

Finally, I couldn’t close without looking at the C word on everyone’s lips these days – not Covid this time, but Cryptocurrency. With Bitcoin prices soaring and the recent news from the Bank of England and the Treasury about the launch of a “Britcoin”, I think we have no other option but to accept that it is indeed the future. Singapore has introduced new legislation to strengthen regulation of virtual assets and the President of the European Central Bank has called for global regulation of bitcoin to close any loopholes or vulnerabilities to money laundering.

 

Also, FinCEN are proposing new crypto regulations, including the introduction of KYC on Crypto wallets. However, crypto does not come without its risks and has been tarnished by its reputation of being linked to illicit activities. Many UK banks have banned the depositing and processing of cryptocurrencies and just this week the Central Bank of Turkey has banned the direct and indirect use of crypto currencies.

 

Regulators, law enforcement and financial institutions will need to upskill their experts in ways to detect and prevent abuse of the financial system by digital currencies, whilst creating a solid foundation for the growth and widespread use of such technology. I have just started the ICA course “Demystifying Cryptocurrencies” to get to grips with the financial crime risks and controls that financial institutions need to implement in this rapidly changing space.  


In summary: the advancement of technology, digital currencies and the ever-changing landscape of financial crime demand a more comprehensive collaboration and best practise sharing between financial institutions and law enforcement. It demands intelligent and holistic client reviews that prioritise behaviour and risk assessment over tick-box data gathering, in order to keep pace with and challenge criminals. We must up-skill and apply our resources where they are needed most, have strong relationships with trusted vendors and skilled partners, and with that return to the true meaning of the Risk Based Approach. No time like the present.

At FinTrU, we work with our clients to help them meet their regulatory obligations, with a particular focus on financial crime and compliance. If you would like further information or a discussion on how FinTrU could help you and your organisation, please contact bd@fintru.com.
 

Rosalynd Smyth

Executive Director - Compliance

LinkedIn

About FinTrU

Founded in December 2013, FinTrU is a multi‐award winning RegTech company in the Financial Services sector that is committed to giving local talent the opportunity to work on the global stage with the largest International Investment Banks. FinTrU works with clients to design solutions to help them meet their regulatory obligations in areas such as Legal, Risk, Compliance, KYC, Operations, Consultancy and Technology. FinTrU’s clients are all global Investment Banks, based in North America, Europe and Asia and the company’s business model is to provide technology enabled solutions to clients to augment and support their existing internal functions.

References

ECB's Lagarde calls for regulating Bitcoin's "funny business" | Reuters

Turkey bans crypto payments for goods and services | Financial Times (ft.com)

The importance of purposeful anti-money laundering controls | FCA

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