By Jane Jee, CEO at Kompli-Global
As with any new and more innovative technology that enters the market, it is often the criminals, rather than law-abiding citizens or companies, who are often the first to exploit the technology for their own ill-gotten gains. This is true at any point but especially during exceptional circumstances, much like we’ve experienced this year.
The COVID-19 pandemic (and subsequent lockdown) has had a profound effect on us all. Businesses have had to furlough employees and take out additional loans, insurance policies and mortgage and rent requests. It has also meant that conventional banks have found themselves under pressure to act like their more agile FinTech counterparts and adopt technology to enable more activities to be carried out remotely rather than face to face.
If banks want to avoid facilitating financial crime, now is the time where they must adopt technologies which can protect their business and reduce the risk of fraud and money laundering.
The factors at play to tip the balance
Time for regulators to see criminals are exploiting technology
The time must come when the regulators take a step back and realise it is the criminals that are exploiting technology – criminals know their way round the system and know where the loopholes are.
I would go one step further and suggest that criminals could be so far ahead of the game that regulators will be forced to step in and mandate the use of certain tools to combat them. For example, the FCA could encourage more financial institutions to solve their regulatory challenges through innovative technology.
The United Nations estimates the cost of financial crime to be between $800bn and $2tn each year. So, what level do losses need to reach for the rapid adoption of new counter crime technologies?
This has been recognised by FCA Director of Innovation, Nick Cook, when he said: “….I think in an era where the advancement in the criminality is driven by the use of fundamentally exponential technologies, the idea that you’re going to address that by moving forward in a very cautious linear fashion doesn’t seem to stack up, you know? We’re in a world where actually standing still is moving backwards…” 
However, Megan Butler, Executive Director of Supervision – Investment, Wholesale and Specialists at the FCA went one step further in a speech delivered at the Royal United Services Institute, saying: “Now as a regulator, we are ‘technology neutral’ – I’m not going to tell you whether you need to automate all your systems or question why you aren’t using AI in every part of your business. But we all need to experiment with new technology, and together see how we can tackle criminals who want to exploit the financial system. We focus on outcomes – and if a new innovation can help reduce harm, we welcome it. We all have a public duty to explore all opportunities to combat crime. Together, we need to turn technology against criminals.”
Additionally, there was a recent announcement that the UK’s Intelligence and Security Committee’s long-awaited report into Russian activity in the UK – revealing that “lawyers, bankers, accountants and public relations professionals – have become wealthy from the Russian money that has flowed into the UK, and particularly into the City of London.” The report reveals that banks are failing to carry out enhanced due diligence on customers with Russian political connections who, although they may not meet the legal definition of a PEP, still represent a high risk of money laundering. The report comes as the FCA – the body responsible for overseeing banks – is increasingly imposing fines for failures to carry out proper customer due diligence.
Noise and confusion of the tech available
It is important to recognise is that the marketplace is so crowded that regulated entities are not sure what is required of them. This uncertainly should be viewed as an opportunity for debate about where technology should be used to combat financial crime.
Regulators expect companies to be proactive in detecting, preventing, and addressing issues within their own operations. These expectations are often costly and almost impossible to complete comprehensively if an organisation just relies upon manual processes alone. Technology enables their highly skilled human compliance staff to devote more time and expertise to customer focused activity rather than wasting time and resources on manual checks.
RegTech companies are pushing the boundaries and solutions are already available that provide access to global real-time data to help human compliance analysts make better, more effective judgments about the risk posed by customers. Technology which uncovers and analyses this data is ideal for countering financial crime and significantly enhances human judgment.
How can the latest technology help?
Many modern systems are designed to leapfrog legacy systems that can constrain banks and other regulated entities and have been developed API (Application Programming Interface) first. It enables the technology and data-intelligence to integrate and enhance existing legacy systems, rather than requiring a replace/rebuild strategy.
This is particularly useful to regulated entities as criminals are becoming more expert at finding loopholes in existing systems. This includes not failing Know Your Customer (KYC) checks because they know what the onboarding team is looking for.
Similarly, fraudsters also know how risk profiling works and will employ ‘sleeper strategies’ before conducting their money laundering activities. However, technology can help to defeat this strategy by incorporating a unique range of other checks that are essential to a comprehensive KYC onboarding process.
By using more than 500 search terms in multiple languages, such technology allows human compliance managers to perform real-time searches of the web, deep web and global government, regulatory and institutional databases to identify any adverse information on new and existing customers that could link them with financial crime. The added benefit is that the technology is able to automatically perform 24 hours a day, seven days a week, so human compliance managers can be alerted when any new relevant information is found.
These functions mean that all regulated entities can be more confident that they keep criminals out and avoid fines for non-compliance. The solutions are built on software that is constantly refined, improved and updated to keep pace with new sources of information.
Fighting financial crime in an increasingly digital world
There is an increasing amount of data available on individuals and businesses due to the globalisation of the financial system and the expansion of the global communications network. Similarly, the global COVID-19 pandemic is affecting the way consumers can transact and are able to access financial services – harnessing technology will enable these businesses to respond to those customers’ needs and wants.