Over the past few decades, money laundering has become an increasingly prevalent issue. Financial institutions are constantly looking for new ways to fight money launderers, and several anti-money laundering policies have been put in place to help this effort.
However, the recent case against NatWest sent shockwaves through the City, with many financial institutions realising that the financial watchdog, the FCA, sent a signal to every bank or firm in the City: crack down on money laundering activities or we’ll come for you.
City A.M. zoomed in on money laundering in the Square Mile and sat down with compliance consultant Mike Hampson, director of CubeMatch, who has a broad background in financial institutions, transaction banking, technology and operations.
Let’s talk money laundering; the NatWest case put it firmly back on the City’s agenda. What anti-money laundering steps can firms in the Square Mile take to avoid a PR debacle as NatWest faced?
We see a never-ending game of cat and mouse. As financial institutions develop increasingly sensitive tools to detect money laundering, criminals devise more elaborate means to foil those systems.
Banks are doing what they can to meet the core expectations for a sound AML programme is knowing their customers, monitoring their activities, understanding the key risks related to products and clients Adapting controls appropriately.
But as the complexity, global reach, and opaqueness of many financial products have increased, the obligations to address these areas have brought additional challenges, which also need to be supported by law enforcement.
A more sensible approach would be facilitating collaboration between the banks, government agencies, and industry infrastructure, led by law enforcement agencies. The goal would be more extensive and quicker data sharing in a controlled manner, leading to more and faster prosecutions of the actual criminals and less need to target financial institutions fighting a battle without the tools and support needed to be successful.
Why do AML measures need a radical overhaul?
The focus on money laundering intervention and holding financial services firms accountable for deficiencies in their programs has been increasing across the globe. When high-profile scandals reveal a lack of AML checks, a closer examination suggests that the global anti-money processing (AMP) system has severe structural flaws, mainly because some regulators are offloading their AML policies to the private sector.
Private sector businesses only have a partial view of what is going on, where what is needed is end-to-end visibility of transactions and money flows.
In turn, many crime-fighting agencies Iack the funding to properly analyse the torrent of suspicious-activity reports banks file when they spot potentially suspicious transactions.
Why is money laundering particularly harmful to the economy?
Money laundering damages financial sector institutions critical for economic growth, promoting crime and corruption that slow economic growth, reducing efficiency in the real sector of the economy.
Money laundering is a problem in the world’s major financial markets, SEA centres, and emerging markets. As emerging markets open up their economies and financial sectors, they become increasingly appropriate targets for financial crime activities. Money laundering creates unpredictable changes in money demand, as well as causing large fluctuations in international capital flows and exchange rates.
What is the scale of crime and money laundering?
It’s estimated that about 50 percent of the world’s GDP is potentially illicit in some way, shape, or form, be that from a completely corrupt regime country through to all of the flavours of criminality and laundering, the proceeds of criminality. The scale needs to be tackled, and this will affect FinTechs increasingly. The major players are recognising the importance and taking this very, very seriously.
Every time there’s a new provider or a new way of making payments or a new way of moving money, criminals are straight away trying to find a way around it.
Organisations need to collaborate more in sharing information and data because you can only report things via the regulators or the criminal authorities in the country. And you can’t share client data for a good reason or open other relationships with partner banks or across territories. And as a consequence, everybody’s doing the same checks on the same people multiple times.
The industry is starting to move in some geographies towards more collaboration with the regulators, the industry, and utilities such as the data providers. All these organisations need to get into a more collaborative way of tackling AML and KYC. That way, it’ll be quicker to identify a problem and then report it more clearly to the authorities.
What benefits are new technologies, such as artificial intelligence bringing to the KYC and the AML process?
KYC and AML are really big hot topics for all banks, and we’ve seen some rather hefty fines over the years where banks have failed to meet the regulatory requirements.
We’re going to see artificial intelligence taking more of a role within this in the near future.
So, it won’t just be people there in the background – pretty much like people using digital banking services; for example, you can pretty much get access to a credit line, providing you could fill in all the correct details. So, you can get a relatively quick indication of whether you’re likely to get a mortgage of a particular value if you want. And I think that that will continue. And this is an adaptation of where we are with the KYC AML process. And it’s only natural that artificial intelligence will take more of a role in that.