Exclusive: Chris Middleton reports from the first RegTech for AML conference in London.
Last year the UK spent roughly $5 billion on compliance, the banking sector filed nearly half a million suspicious activity reports (SARS), and yet there were almost no prosecutions: evidence that the fight against money laundering may need to be shifted away from quantity, and towards a more qualitative approach.
This was one of the takeaways from the inaugural Transform Finance RegTech for AML Forum on 2 May, which took place deep in the heart of the UK banking sector: Canary Wharf.
Chair of the morning session, Sam Sheen, ex ante advisor, observed that the historic cultural divide in financial services, between those involved in technology and those working in finance, is falling away, but leaving an industry with silos of expertise and activity rather than concerted, sector-wide action.
Speaking under Chatham House rules (in which a discussion can be reported, but not a named speaker), one panellist complained that compliance professionals are being asked to be Sherlock Holmes when that is not their prime purpose. A delegate observed that organised criminals are being faced with a “police force of one” in some organisations – an unequal fight that banks can’t hope to win without the aid of better technology.
But to inform that technology demands better, cleaner, consistently tagged, non-redundant data that banks are legally allowed to maintain. One delegate observed that he had “never encountered a data lake”, but “had encountered many data swamps”. More, the twin cycles of technology development and regulation often fail to coincide.
Priya Giuliani, Managing Director of Financial Crime Risk Management at the Promontory Financial Group (part of IBM), observed that many banks still hold incomplete or out-of-date information – often electronically on systems that don’t talk to each other, and sometimes still on tape or paper.
Automating transaction monitoring is another major challenge, she observed. Others include the risk of straying into areas that are not regulatory requirements, such as media monitoring.
To continue the process of enabling anti-money-laundering with smarter technologies, the industry needs to drop the acronyms and focus on customer need, Sheen suggested – a tough challenge for tech providers when inventing jargon is their stock-in-trade.
Another challenge in a sector that is becoming more tech enabled is the need for transparency, accountability, and audit, especially when KYC decisions or SARs have been raised via inference or predictive analysis. In short, can banks show their workings and create a legally sound case if someone has been denied services? As one panellist observed, fuzzy logic is not recognised in law.
In all cases, AML and compliance should be a pragmatic, strategic, and forward-looking process, and not a reactive, box-ticking exercise enabled by point solutions.
But technology can help. John Asprey, Regulatory Compliance Solutions Lead at Promontory, outlined how the company developed a system to slash the high numbers of false positives for one major bank, which is now being piloted by others. In these instances, banks want reduced volumes, but also greater insight.
Another big-picture money-laundering problem facing banks is related to sanctions. Head of Sanctions at a major European bank stressed that they are always a political issue – a challenge in an era in which the US, in particular, is running its foreign policy aims through its trade and financial agreements. (The UK’s face-off with the US over Huawei is an example of this in another sector.)
In such an environment, how can banks adopt a global approach to preventing financial crime when the US is at loggerheads with the EU and UK over regimes such as Iran?
In these instances, there can be conflicts between primary and secondary sanctions for institutions that have a footprint on both sides of the Atlantic. In a sense, a global industry may have little choice but to follow the path of least resistance and avoid the risk of punitive action; a troubling state of affairs if this clashes with European policy objectives.
With Brexit on the horizon, the UK is likely to take a more independent approach in the years ahead, having been at the core of European financial policy making in recent years. Whether the UK chooses to align more closely with the US is, at this stage, impossible to predict.
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