In Anti-Money Laundering, Political Corruption, Sanctions, Terror Financing

Greater RegTech Spending on the Horizon for FI’s

As financial institutions (FI’s) continue to place a premium on financial security and subsequently a reduction of reputational risk and other repercussions, no distinct area of compliance has grown as exponentially in recent years as regulatory technology. Commonly referred to as “regtech” or “fintech”, the use of regulatory technology has become widespread in the financial services sector, as regulators and service providers alike have embraced the latest tools and technological advancements available to them. These technologies have evolved from once being viewed as a mostly-unnecessary luxury to what is now a vital component of an institution’s compliance department. Regtech has essentially transformed the once daunting manual responsibilities of compliance officers by offering highly efficient and cost-effective automated solutions to aid in basically all areas of compliance. Increasing the use of new technology and automation has also allowed for FI’s across the globe to keep up with the ever-changing regulatory landscape that we see in 2017.

To put the regulatory changes seen over the past decade into perspective, it has been found that “developed markets have see a 492 percent increase in regulatory changes between 2008 and 2015, especially in anti-money laundering and consumer protection” (Kumar, 2017). While this statistic is eye-opening, the absurd aspect is that these numbers are still on the rise. The Finextra article “Compliance execs to raise RegTech spending as geopolitic risks heighten”, cited in BSA News Now on Friday, May 19th, 2017, examines an annual compliance-centered report run by SWIFT and Dow Jones Risk & Compliance earlier this year. The report monitors the current regulatory landscape and gains insights from industry experts into pressing issues, including newly enacted regulations. The study, which surveyed over 500 international compliance and AML professionals, found that “a large majority (75%) of anti-money laundering professionals believe the current geopolitical landscape presents new risks and challenges for preventing financial crime at their organisations” (Finextra, 2017). As a result of the potential for these risks to greatly impact the financial services sector, the report found that more than half of the compliance professionals surveyed plan to beef up their regtech arsenal to combat growing threats in the next three to five years. Furthermore, 59% of the individuals surveyed also believe that “technology has improved their company’s ability to tackle AML, KYC and sanctions requirements” (Finextra, 2017). Clearly we have come quite a long way from the days where regtech was an “unnecessary luxury.”

Difficulties to Overcome

The report also uncovered the specific areas of regulatory compliance that professionals in this sector have found to be most difficult to manage, with increased regulatory expectations leading the charge. The complexity of today’s regulatory landscape is not overstated, as both political and economic factors can have significant effects on business relations and anti-money laundering initiatives at the international level. This makes the need for financial transparency and transnational cooperation essential in the global fight against money laundering. Many believe that the adoption of the latest regtech by FI’s across the world may help strengthen the weaknesses found in the AML armor of countries that are more susceptible to financial crime and corruption. Other areas that compliance teams have struggled to deal with are the “enforcement of current regulations (50%), and the need to understand regulation outside of their home jurisdiction (42%)” (Finextra, 2017). A reliance on outdated technology and procedures was also found to be a challenge for a great percentage of the surveyed officials, as was the difficulty in fielding a fully-trained and experienced staff capable of properly handling compliance responsibilities. The findings also demonstrated that compliance departments have begun to manage their AML and anti-fraud pursuits together at a greater rate than ever before.

The wealth of knowledge gained through this survey grants a first-person viewpoint into the everyday world of compliance, and gives one a greater understanding of just how complex regulatory compliance can be for all parties involved. However, the reliance on regulatory technology has undoubtedly had a marked impact on the anti-money laundering and counter terrorism financing movements across the globe. As new threats emerge, as will new changes in regulation governing the financial services sector, and the need for more potent regtech solutions will likely only increase in the years to come.  

Weekly Roundup

Will the Info-Sharing Trend Reach the U.S.?

The Bloomberg article “Australian Money-Laundering Alliance a Stretch for U.S.”, cited in BSA News Now on Tuesday, May 16th, 2017, examines the AML partnership between the big four banks of Australia and the federal government that is helping to deter money laundering throughout the continent. The “Fintel Alliance” as it has been coined has already garnered great reviews from those in the AML and financial services community for the “unprecedented opportunity it offers to government and banks to share insights to combat the long-standing issue of serious financial crime” (Hill, 2017). The alliance is based on the sharing of information gained from transaction monitoring between financial institutions (FI’s) and the government. To date, the partnership has functioned by allowing regulators to flag suspicious activity while notifying bank officials who then work to connect the information further, and ultimately report the activity to law enforcement officials. This has been an effective solution thus far, solving mutual problems for these separate entities.

The latter portion of the article discusses how such an alliance could potentially impact the United States banking industry, although many believe it is too difficult to be pursued due to differing AML requirements between the countries. Differences in reporting time for suspicious activity (within 72 hours in Australia vs. up to 30 days in the U.S.), as well as privacy concerns stemming from lack of coordination by the federal government would likely place large burdens on U.S. financial institutions, making its implementation difficult. However, many U.S. financial service providers, including Robert Rowe, Vice President of the American Bankers Association, believe that greater cooperation within the U.S. would undoubtedly be beneficial in the fight against money laundering and financial crime. In the article, Rowe states, “a little more direction from the government would be helpful. Firms are spending billions of dollars to comply with [AML] requirements, so it’s very important that the government be incredibly clear about what it’s looking for” (Hill, 2017).

While collaboration between the government, law enforcement, and FI’s would likely lead to greater outcomes in the AML fight, the reality is that a significant amount of work would be needed to create such an alliance in the United States.

Guyana Listed as Major Money Laundering Nation

The U.S. Department of State released its annual International Narcotics Control Strategy Report (INCSR) earlier this week. The report covers the efforts of countries around the world to hinder the international drug trade, as well as money laundering and financial crime. The report has been the subject of international headlines following its release however, stemming from the new listings of 14 Caribbean countries as major money laundering nations, a list that most notably includes Guyana. According to the report, “ill-equipped investigative agencies and the lack of cooperation from the business community are hampering Guyana’s ability to successfully tackle [money laundering]” (Staebrok News, 2017). Guyana was found to be a hub for criminals using cash couriers to launder and move funds between Guyana and the U.S. Each of the members of Caricom – the Caribbean Community comprised of fifteen member states – were included in the Department of State’s report, minus the territory of Montserrat.

In total 106 countries were listed in the report as major money laundering countries in 2016, including Canada and the United Kingdom. Some of the listed countries, including Barbados, have already voiced their disapproval for the report’s findings, with Barbados Minister of Industry describing its contents as “misleading” and “baseless” (Staebrok News, 2017). Several of the Caribbean countries are fearful of the potential fallout from the report, and are disappointed that it failed to recognize the current AML efforts being made in the majority of these countries.

Global RADAR will provide an update on the fallout from the INCSR at a later date.

Terrorism Financing through Crowdfunding

After studying crowdfunding platforms within the country, Fintrac, Canada’s money-laundering watchdog, has determined that there is a significant challenge involved with identifying transactions made by terror suspects. The issue revolves around the “lack of information available in electronic fund transfer reports on contributors to crowdfunding campaigns” (Posadzki, 2017). Detailed information on contributors to crowdfunding campaigns are often not reported because transfers typically fall below the reporting threshold of $10,000. There is also a history of terrorism-related suspects in Canada using crowdfunding sites before attempting to depart from the country, leading some to believe that these individuals could be attempting to raise last-minute funds to fight overseas.

Although financial institutions (FI’s) are required to report all suspicious activity to Fintrac, they merely act as facilitators in crowdfunding transactions – meaning they don’t have detailed information available on the fundraising campaigns they are handling. Many believe that new AML regulations are needed to govern new technologies and ways of transferring funds, such as crowdfunding, or risk new financial crime and terrorism financing occurring within the borders of countries lacking in this regard.

China & Kenya Vow to Fight Corruption Together

On May 15th, Kenyan Attorney General Githu Muigai signed three corruption-centered treaties with the People’s Republic of China, signifying the commitment between the two countries to cooperate in the international fight against corruption. The treaties also encompass procedures for bilateral recovery of assets, as well as repatriation of criminals between the countries.

Citations

Editorial Team. “Compliance Execs to Raise RegTech Spending as Geopolitic Risks Heighten.” Finextra Research. Finextra, 17 May 2017. Web. 

Hill, Richard. “Australian Money-Laundering Alliance a Stretch for U.S.” Bloomberg BNA. Bloomberg, 15 May 2017. Web. 

Kumar, Kabir. “The Real Promise of Regulatory technology.” TechCrunch. 09 May 2017. Web.

Posadzki, Alexandra. “Study Cites Significant Challenge in Detecting Terrorism Financing in Crowdfunds.” Times Colonist. 18 May 2017. Web. 

PSCU. “Kenya, China Sign Treaties to Fight Corruption, Recover Stolen Public Assets.” The Star, Kenya. 16 May 2017. Web. 

Staff Writer. “US Report Lists Guyana as ‘major’ Money Laundering State.” Stabroek News.  13 May 2017. Web.

 

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