The keys to successfully fighting financial crime

Billions of dollars are spent each year on financial crime compliance programmes, but do the ends justify the means? After all, less than 1% of criminal proceeds are seized or frozen. What are the reasons for this and how can we better innovate in financial crime compliance? One of the Sibos 2021 sessions focused on reasons for the discrepancy between the investments made and the successful prevention of financial crime.

The evolution of financial crime

To start on a positive note, the first discussion point was to exchange thoughts on what has worked well and been effective so far. Carolina Garces-Monterrubio, Global Head of Financial Crime Compliance at Banco Santander, stated that she thinks the industry has come a long way. She concluded that we learnt from past mistakes and sees the last 20 years as a constant change and revolution of the regulatory framework. According to her, we have now come to understand the need for a holistic view and have recognised the importance of financial crime.

Daniel Tannebaum, Partner at Oliver Wyman, recognised the evolution of financial crimes within large organisations. The profile of financial crimes within an organisation has significantly elevated. While organisations used to have a financial crime department tucked away in a legal department somewhere, you now see the head of financial crime at the forefront of large global organisations. Another part of the evolution is diversity. Paul Jevtovic, Chief Financial Crime Risk Officer at National Australia Bank, sees an increase in engagement, not only between banks, regulators, and law enforcement, but with academia and fintechs. The last decade has probably seen a more rapid development than the 30 or 40 years before.

Key barriers to success

Secondly, the challenges we face today were discussed. A common concern are the increasing and unsustainable compliance costs in the fight against financial crime. In addition, another important aspect is that our thinking is still outdated and conservative. Legislation and regulations have not kept pace with technological progress and the opportunities it offers. Understandably, implementing innovation takes time and involves new investments.

Another challenge discussed and agreed upon by the panellists was cooperation. According to Milan Gigovic, Head of Financial Crime Threat Management at ANZ Bank, there is a need for further legislative reforms to provide secure channels for industries to work together in a cooperative and innovative manner. What we are currently missing, is a technical framework for data sharing at a large scale. This is a real limitation that criminals can exploit by profiling across organisations, and because each organisation holds a piece of the puzzle, fraudsters do not necessarily need to have a clear picture of the overall activity to form a suspicion. We must ensure that the government and more enforcement agencies have sufficient resources to respond.

The challenges are partly due to the rapidly changing financial landscape and, of course, the shift to a more digital landscape. The changing paths are not always followed by regulators and supervisors. New technologies and methodologies are hard to keep up with and innovations sometimes move faster than regulations. This can create challenges worldwide. Compliance is needed to prevent fear and focus on eliminating risk.

Measuring disruption and success

An important point Garces-Monterrubio raised while discussing the challenges in fighting financial crime is measurement. The question would be how to measure both successes and disruption. We need to find a more meaningful way of measuring the extent to which the schemes are preventing – or at least detecting – crime wherever possible. The role of regulators and the adoption of a comprehensive approach is crucial here. Responsibility must be shared by all actors involved. There must be a certainty that innovation can be done in a sensible way.

Collaboration and information sharing

Now that the positives and challenges have been discussed, it is time to look ahead to the next steps in the fight against financial crime. And according to the panellists, there are several action points that need to be taken, with collaboration and information sharing being the key factors to combating financial crime.

It can be concluded that all types of financial institutions need to work together to address the challenges faced. International regulators should work closely with financial institutions such as banks and fintechs. And the same rules should apply to all participants in the sector, allowing for a risk-based approach. We must exchange information and learn best practices to improve our understanding of risk. In addition, investment in data infrastructure for information sharing will enable emerging threats to be identified and addressed more quickly in real-time. We need courage and leadership to truly embrace a collaborative approach to information sharing.