In Anti-Money Laundering, Bitcoin, Compliance, Cybersecurity, Trending

The Effect of Data Protection Regulation on European FI’s

Last week, Global RADAR featured a story on the passing of the Money Laundering, Terrorist Financing and Transfer of Funds Regulations of 2017, which are now in full effect in the United Kingdom. Through the implementation of multiple recommendations made by the Financial Action Task Force (FATF), the new regulations significantly enhance the 2007 Money Laundering Regulations that preceded them, and also include a notable upgrade to the European Union’s (EU) anti-money laundering (AML) and counter-terrorism financing (CTF) initiatives. The new legislation also calls for financial institutions (FI’s) to implement risk-based practices and will also extend the scope of regulatory requirements for compliance officers, departments, and FI’s altogether. The EU also recently employed the General Data Protection Regulation (GDPR), a directive created by European Parliament and the Council of the European Union with the intent of strengthening data protection for individuals governed by the EU and simplify the regulatory environment for international business overall. Additionally, the UK Gambling Commission (UKGC) also stepped up its regulations to combat breaches in gambling laws, with gambling operators now facing increased penalties, specifically for repeat offenses.

As a result of all of this new legislation, financial institutions and other entities across Europe have placed a greater emphasis on data protection for their clients of late in order to remain compliant. The article “How EU regulations will affect UK financial firms” cited in BSA News Now on July 6th, 2017, is an interesting piece that examines the impact of data privacy auditing, and compliance issues on the financial services ecosystem. Many see the GDPR conflicting with another piece of legislation that was recently passed, the EU’s Payment Services Directive (PSD2) of 2015, which set out to improve protection for individuals making payments online. While many FI’s have accepted PSD2 with open arms due to the ability it possesses to improve customer service and other vital areas of business, writer Davey Winder, quoting an industry expert, explains that “with up to 4 percent of global turnover or €20 million as a penalty, financial service companies are also taking a whole raft of measures which is having a knock-on effect on the way systems, processes and partnerships are delivered” (Winder, 2017).  Whilst in the past financial organizations were merely required to protect client data, in today’s society businesses must also be transparent in regards to their terms of usage of such data. This is a huge plus for consumers, as their funds and data are becoming more and more secure on seemingly a daily basis, but it has also had a major impact on the financial services sector as a whole. In order to avoid regulatory penalties and sanctions, FI’s across the globe have had to generate and implement new, costly regulatory technologies to manage customer data and maintain financial security efficiently, a process that has been made quite evident over the last several years specifically.

Winder also explains that financial institutions are not the only entities being affected by the new regulations, as “the broader ecosystem that encompasses third-party vendors and partners will also feel the impact of such regulation” (Winder, 2017). GDPR is likely to completely impact the way compliance is managed throughout Europe in the years to come, as there will undoubtedly be greater liability placed on financial institutions and those they do business with to comply with the new legislation or risk financial and reputational repercussions. On the bright side for European FI’s however is the fact that through the implementation of full GDPR compliance, organizational security will be much easier to maintain, as previously complicated issues such as data breaches will become less challenging to identify and investigations will be supplemented by a variety of useful information on the data’s usage. Nevertheless, the implementation of the GDPR will be a difficult affair for financial institutions, specifically in regards to issuing proper training to all employees with respect to data protection and ensuring the appropriate processing of data through company supply chains.

The article concludes with an excerpt from John Culkin, director of information management at Crown Records Management, a prominent corporate information management company. Culkin states “GDPR will be transformative in that it puts the customers back at the centre and in control” and that the biggest challenge will not necessarily be in the implementation of new technologies to facilitate the process, but instead “the challenge is understanding the business and the processes within it, along with how people interact with information” (Winder, 2017).

Weekly Roundup

 The Global Decline of Correspondent Banking

 A survey released by the Financial Stability Board this week showed just how significant the fall of correspondent banking in several regions of the world has become in recent years. In a five-year span from the start of 2011 to the end of 2016, it was discovered that “the number of active correspondent banking relationships globally fell by 6%. The decline was more severe for US dollar and euro relationships, which both fell 15%” (Slater, 2017). These findings come in large part as a result of banks across the globe engaging in “de-risking” tactics in order to avoid international scrutiny and large financial penalties for potential compliance failures. Other factors leading to the decline include sanctions discrepancies and a lack of profit for the banks maintaining the correspondent banking relationships abroad.

Although financial institutions are subjected to stiff punishment for non-compliance, the countries they are severing financial ties with are likely to suffer a far more barren fate. Latin American, African, and Caribbean countries have been affected greatly by de-risking thus far, and have already seen a negative impact on their ability to send and receive payments internationally, and have been subjected to other “adverse consequences on international trade, growth, financial inclusion, as well as the stability and integrity of the financial system” (Slater, 2017). The survey also reports “the Caribbean and the small Pacific areas of Melanesia, Micronesia and Polynesia saw the highest rates of decline, of about 10% each” (Slater, 2017).

Overall, the results of the survey demonstrate the need for vast amounts of assistance to be provided to these affected countries in order to improve their AML infrastructure and their customer due diligence procedures which will in turn reduce their chances of being de-risked.

Japan Terminates Bitcoin Tax

 July 1st marked the date of enactment for a tax reform bill in Japan that effectively removed the 8% consumption tax on the sale of Bitcoin, which had previously been the country’s standard charge for such an exchange. The move is expected to bring about a monumental rise in the already popular and well-regulated Japanese Bitcoin and cryptocurrency trading markets – an area that experts believe has the potential to evolve into a multi-trillion dollar industry over the course of the next five years.  Following the Japanese government’s decision to recognize Bitcoin as a legal form of currency on April 1st, 2017, their government has since shifted focus to the establishment of a secure and efficient network for Bitcoin users and traders to collectively function. Reports indicate that one of the key areas that was addressed as part of the Japanese government’s new initiative is to “render Bitcoin and cryptocurrency trading frictionless, allowing traders to easily access cryptocurrencies without having to deal with external factors such as taxes”(Young, 2017).

News of the tax’s removal has spread like wildfire throughout Japan and abroad, with investors from far and wide gaining interest in the Japanese Bitcoin market and virtual currency in general of late. As a result, since the July 1st enactment, the price of Bitcoin has already increased by $140 USD. This rise can also be attributed to greater levels of acceptance of cryptocurrency by financial institutions, which has validated the still-novel currency to some extent to the citizens of Japan and those in other markets dabbling in virtual funds, specifically those in Asia. It seems we will soon see a day where Bitcoin could become the payment method of choice for both individuals and businesses across Japan.

U.S. DOJ Anti-Fraud Official Resigns

An anti-corruption expert formerly employed by the U.S. Department of Justice’s fraud division has decided to speak out against her former employer following her decision to leave her position in late June. Hui Chen, who had held her position as a contracted compliance expert on the Department of Justice’s compliance counsel since November of 2015, described several of the issues she had in working for the top branch of law enforcement in the United States via a candid LinkedIn post that has since made international headlines. In her post, Chen gave her sentiments about her position, which she believed hypocritically required her to evaluate the ethics of companies across the United States, when she herself questioned the ethics and morals of her employers and the Trump administration altogether. Chen wrote, “Even as I engaged in those questioning and evaluations, on my mind were the numerous lawsuits pending against the President of the United States for everything from violations of the Constitution to conflict of interest … and the investigators and prosecutors fired for their pursuits of principles and facts” (Jarrett, 2017).

Although President Trump is not currently under criminal investigation over any of the topics Chen mentioned, she simply could no longer handle the moral conflict involved with the position, turning down an offer to renew her contract (which was set to expire in September) earlier this year. Chen has also stated her resentment for the upper level management of the DOJ that did not allow her to engage in public speaking during her tenure. Chen plans to write about, and eventually work in, corporate compliance again in the future and hopes to work towards the protection of democracy as well.

Citations

Jarrett, Laura. “DOJ Official Resigns, Citing Trump.” CNN. Cable News Network, 04 July 2017. Web.

Slater, Steve. “Risk-averse Banks Cut Correspondent Relationships by 6% (HSBA, JPM, BARC, C) | 07/04/17.” Business Insider. Business Insider, 4 July 2017. Web.

Winder, Davey. “How EU Regulations Will Affect UK Financial Firms.” Raconteur. Raconteur Media Ltd., 30 June 2017. Web.

Young, Joseph. “It’s Official: Japan Has Eliminated Tax on Bitcoin, Rise in Trading Expected.” Cointelegraph. 03 July 2017. Web.

 

 

 

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