The Changing Face Of Financial Crime Compliance

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Efforts to prevent and detect financial crime are often compared to tracking a moving target. As the techniques and objectives of criminals shift, so must those charged with thwarting them across the public and private sectors.

However, tackling financial crime is no longer the responsibility of individual banks to solve on their own. This industry-wide problem relies on financial institutions working collaboratively on effective and efficient solutions in a resource constrained world.

Paul Taylor of Swift’s Financial Crime Compliance Services Division discusses the evolving compliance landscape and the critical role of technology in helping the industry come together as a whole to combat financial crime.

What role can intelligence sharing play in making financial crime compliance more effective?

Over the last 30 years, financial crime has become an increasing concern for governments around the world, while banks have been doing their best to tackle this growing issue head on. Today, firms are often expected to satisfy regulators in multiple jurisdictions. They must demonstrate robust governance, effective risk procedures and adequate internal control mechanisms to manage their financial crime risk.

The quality of underlying data and information relating to international payments is vital to a bank’s ability to monitor and address financial crime. Significant resources are also required to source, assess and maintain accurate data on counterparty relationships. This includes regular qualitative assessments to ensure the data is verified and kept continuously up-to-date.

Against this backdrop it is clear that tackling financial crime should not be done in silos. KYC utilities allow banks to centralise and share information about themselves with the relevant counterparties, introducing efficiencies in the compliance process and reducing due diligence costs. Given the significant reliance banks have on each other through long-established customer trading relationships, this makes business sense. KYC utility platforms reduce duplicated efforts and deliver significant time and cost savings as well as helping to standardise a highly complex process.

In addition, banks are increasingly sharing intelligence with law enforcement agencies. This enables them to build up an understanding of patterns of financial behavior that might be indicative of terrorist or criminal behaviour, and addresses the regulatory drive for increased transparency and, ultimately, a reduction in financial crime.

Can good compliance drive good business?

Some institutions see compliance as a crucial, but often burdensome, process for combating criminal activity and the illegal flow of money. However forward-thinking compliance professionals and CEOs also recognise that robust compliance procedures earn the trust of regulators and can transform their business prospects.

By demonstrating that a strong compliance framework has been embedded, a bank can attract customers seeking legitimate channels for facilitating international payments and correspondent banking requirements.

This is particularly pertinent in high-risk regions where de-risking has become a concern for local financial institutions and regulators, affecting their ability to access the global financial system. By demonstrating compliance and transparency, banks in higher risk markets can reduce the chance of being de-risked and position themselves as safe and reliable business partners.

How can banks and other financial institutions reduce the impact of de-risking?

De-risking has had the unintended consequence of driving institutions towards channels that are less transparent, more difficult to track, and attract greater risks. This can decrease transparency and potentially make it even harder to track and prevent money laundering and criminal activity– the very thing that regulation is intended to prevent.

To reduce the impact of de-risking, it is critical for banks and financial institutions to work together with regulators and customers. This approach supports robust and transparent compliance procedures that facilitate the international flow of legitimate payments, business and commerce.

At the same time, it is crucial to maintain dialogue and awareness of industry practices, challenges and concerns, and work together to develop standardised solutions that can be adopted by a broad range of institutions.

From our experience, the optimal route to achieving this is the use of industry-wide platform solutions based on collaboration, standardisation and transparency.

How could utilities reduce compliance costs?

The cost and complexity of regulatory compliance is increasing rapidly. Compared to pre-financial crisis spending levels, operating costs spent on compliance have increased dramatically.

It is no longer efficient for institutions to tackle these issues on an individual basis. The costs are too high, and ‘going solo’ creates additional complexities for counterparties and is not sustainable in today’s operating environment.

Many institutions are now partnering with third party utilities to combine common ideas and best practices with technological innovation. By working together, they are developing industry-wide solutions that can be adopted across a broad range of institutions.

Is artificial intelligence (AI) clever enough for compliance?

The technology and tools available to tackle financial crime continue to evolve and many institutions are exploring the potential of emerging technologies such as AI.

Although AI remains in its infancy, financial institutions recognise its potential benefits. In our view, AI technology has the potential to be applied in a broad range of areas, from natural language in payment processing to strengthening the effectiveness of sanctions filters, and the automation of alert investigations for compliance systems.

When developed and used appropriately, AI can provide business insights that can be used to drive innovation, improve the effectiveness and efficiency of processes, and mitigate compliance and fraud risks.

Can robots help fight financial crime?

As the flow of international transactions continues to increase rapidly, so too are the levels of information and data processing. It is a major challenge for humans to process all the data relating to counterparties, institutions, sanctions lists etc. without a degree of automation. This involves investment in people that have the skills to conduct robust, regular qualitative assessments.

Due to the high volume of information involved, there is an inherent risk of instances of financial crime being inadvertently missed, or of human bias being injected into the process. Machines can play a key role in this regard, using their automation, intelligence and superior processing power to introduce greater efficiencies to compliance processes, particularly ones that are easy to standardise.

This leaves humans free to focus on other areas that require deeper analysis and intuition and personnel skills, such as customer relationship management, or evaluating the risk associated with new clients or existing relationships.

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Source: BT

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