Last week saw MLROs and Compliance Officers gather in London for the Financial Crime Conference 2016. The conference, hosted by the Financial Conduct Authority (FCA), brought together industry experts to discuss the current state of the fight against financial crime and the future methods AML practitioners can take to stay one step ahead of criminals.
Here are ICT’s five key points to take away from this year’s conference:
1. Financial crime: progress made but more to be done
FCA Chief Executive Andrew Bailey was keen to stress that despite advances in tackling financial crime, the constantly evolving threat means it can never be fully eradicated. He described how financial crime will ‘mutate and morph’ in the future, and that AML practitioners must be alert to changes in criminal behaviour.
Bailey remarked that overreliance on regulation can be ‘ill-suited in a world where criminals are able to move very rapidly’. Criminals aren’t standing still, so MLROs and Compliance Officers shouldn’t either; they need to be flexible to stay one step ahead. Bailey summarised financial regulation as ‘the use of judgement framed in terms of a set of rules’. But how is this achieved?
Initiatives like the Joint Money Laundering Intelligence Taskforce (JMLIT), explained FCA Head of the Financial Crime Department Rob Gruppetta, were an effective example of cooperation, where information is shared on a voluntary basis between banks, government agencies and regulators. Gruppetta believes the challenge is how trust can be sustained as JMLIT is expanded, whilst acknowledging that the FCA themselves have a responsibility to foster trust.
2. Innovation the key to progress
All speakers underlined the huge role that technology can play in combatting financial crime. Yet whilst technology is a tool that can aid businesses, there was a reminder that criminals are also constantly exploring new technology to exploit opportunities. How do regulators keep up with criminals who rapidly harness new tech?
The FCA’s Innovation Hub was an example of an important project where innovative businesses can receive support and guidance. Additionally, the FCA have established Sandbox, which allows firms to set-up and test new frameworks in a controlled environment.
There is however room for improvement. Nausicaa Delfas, Director of Specialist Supervision at the FCA, highlighted the inefficiency and lack of progression that existed in some organisations, describing how ‘basic customer due diligence checks undertaken by many firms are much as they were 20 years ago’, and described these checks as ‘paper-based when the rest of the world has moved to the 21st century’.
The FCA, explained Delfas, wants to encourage firms to explore new ways of conducting CDD checks, ways that are cost effective, reduce burden, and help stay ahead of criminals.
3. Regulation not restriction
Regulation is crucial to policing financial crimes, but there is a feeling that when regulation becomes too rigid it has the potential to hinder businesses. The FCA’s Rob Gruppetta promotes balance as a way of preventing this from occurring: ‘There’s a delicate balance between deterring criminals and terrorist organisations but also being proportionate, risk-based and fair to legitimate businesses.’
Gruppetta acknowledged that he didn’t want compliance cost to hamper fighting financial crime, and so pointed to the tiered structure work undertaken by the FCA: Systematic Anti-Money Laundering programme (SAMLP) for major retail and investment banks and 2-4 day visits to smaller firms with inherent money laundering risks.
The tiered approach to FCA supervision was given as an example of a pragmatic way of combatting financial crime, based on size and money laundering risk. Where there were flaws in firms, Gruppetta pointed to some shared characteristics: ‘Common root causes were weaknesses in governance and longstanding, significant under-investment in resourcing and relevant controls.’
A pattern of weak governance in organisations that were failing to adhere to regulation demonstrates the importance of instilling a robust governance framework.
4. Financial crime a global concern
‘AML is a global issue, not just a domestic one.’
Peter Gruppetta, Head of Financial Crime Department, FCA
A key message from the conference was that the fight against financial crime is a worldwide issue. The interconnectedness of the global economy means that repercussions from financial misconduct in one country can reverberate in another country. The recurrent themes of the conference that applied to the UK – vigilance in maintaining robust regulation, utilising new technology to stay ahead of criminals – are equally applicable to countries worldwide. Indeed, one of the most effective ways of tackling money laundering is international cooperation between regulators, businesses and organisations.
In summary, regulators, individuals and businesses are proving themselves adaptable in the fight against global financial crime, and significant steps have been taken, but there is still plenty more that can be done by all parties to ensure financial criminals are always one step behind.
5. FCA’s next steps
The FCA used the conference to announce plans to review a random sample of other firms supervised under the Money Laundering Regulations, taking place in the near future. Around 100 firms will be inspected annually, and will include a range of financial roles from stockbrokers to life insurers. The FCA are looking to build on the positive results they gathered when inspecting 159 firms back in 2010.
The reasoning behind the inspections is the clarification of standards across the board, and allows the FCA to assess their own risk assessment and provide a clearer indication of the risks faced in different sectors.
Another crucial development will be a financial crime return. The return, from which only the smallest companies are exempt, will give the FCA a better indication of which companies face a higher financial crime risk, so that supervision can be targeted with more accuracy.
The year ahead looks to be a busy one for regulators, businesses and organisations. With economic crime being recognised as a national security threat by the UK government, partnership between the private sector and government is more important than ever.
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