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The new age of financial crime

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Sam Cartwright Compliance & Financial Crime, Permanent, Temporary...

Financial crime has recently gained more attention throughout the world, with costs to the global economy estimated at an extraordinary $2.4 trillion per year and banks being fined approximately $26 billion over the past decade for AML-related offenses alone.

Within the UK there has been a significant rise in financial crime over recent years. During 2017, UK companies refused to provide financial services to more than 1.15 million prospective customers due to concerns over financial crime (read more), with 11,500 full-time financial crime staff employed within 2,000 UK companies. Also, in the Asia-Pacific region, 49% of businesses have been victims of financial crime over the past year.

What recent activity has caused such concern across the globe with regards to financial crime issues? In this article, we outline such activity and also include present and potential future trends relating to the prevention of financial crime.

Firstly, you may have come across news stories covering the lenders in 9 EU member states that have been subject to extensive money-laundering schemes. In order to combat this, the ECB (European Central Bank) have been working alongside the ESAs (European Supervisory Authorities). These two regulatory bodies have combined forces to approve a multilateral agreement on steps to be taken in the exchanging of information between EU member state authorities. Such measures have been taken to closely monitor communication activity between entities in the hopes of identifying suspicious activity and therefore prevent all forms of financial crime from ever occurring.

This agreement works both ways; specifically, authorities being monitored will be able to question the ECB regarding the type of information gathered on financial institutions so that data privacy is adhered to.

Secondly, the rise of virtual currencies is providing new hunting ground for cyber criminals. Virtual currencies such as bitcoin have made it easier for cyber criminals to target firms for money laundering purposes. Payments can be made using virtual currency that evades detection, in particular with regards to financing illegal activity and even transferring funds across borders to facilitate terrorism.

Virtual currency also makes it easier for criminals to extort money out of firms, for the same reason as previously mentioned, as it can be virtually impossible to track transfers when dealing with a highly-skilled hacker. Countries have been known for their failure to impose regulations to prevent financial crime through use of virtual currency.

Thirdly, Brexit could make the UK more vulnerable to financial crime. Currently, London is one of the world’s top locations in which to launder money. The reasons behind this are often disputed, however it is thought that the fines which are being imposed are too low, some at just £1,000. There have been measures in place to combat this illicit financial behaviour are perceived as outdated and haven’t changed a great deal for some time. With high levels of uncertainty surrounding the Brexit negotiations, the below two questions should be considered:

1) Will the UK be able to formulate its own rules & regulations post-Brexit, or will the absence of EU laws leave the nation more vulnerable to financial crime?

2) What happens if no deal is reached upon Britain exiting the EU?

There have been a number of recent trends regarding the prevention of financial crime. The two financial crime prevention methods in question are the concept of banking collaboration and the rise of AI (artificial intelligence).

The notion of banking collaboration stems from regional consortiums being formed through financial institutions combining forces, with the main purpose of preventing financial crime. The formation of a regional consortium could mean greater efficiency, knowledge, expertise, and customer experience.

Policies can be developed and executed to a higher standard and then implemented into more sophisticated technologies with increased man power and investment. Banks can pool together revenue generated to commission research into trade execution.

Finally, the rise of AI and machine learning has seen significant steps in monitoring suspicious activity within firms, especially recognition of AML (anti-money laundering). We know that the majority of banking organisations feel the need to improve their AML systems and one solution which an estimated one-third of financial firms are implementing is AI.

AI has moved from the discovery to the implementation phase in recent years, with the capability to signal new ways to analyse and organise data through intelligent segmentation based on customer transaction behaviour.

A major benefit of implementing AI into an organisation is the amount of valuable time it has and will continue to save for analysts. This time saved refers to false positives being uncovered and then subsequently dismissed from financial crime alerts. AI is able to identify a huge 25-35% more false positives within a firm’s financial crime alerts system.

The financial crime landscape is continuously altering, and we are always on the look out for financial crime specialists on behalf of our clients. If you would like to take a look at our latest vacancies in this area, you can visit https://www.hamlynwilliams.com/job-search?job_functions=compliance-and-financial-crime. Alternatively, please send a copy of your CV to info@hamlynwilliams.com or call 0203 675 2920.