By Ian Henderson CEO, Kyckr
You may not think it, but your compliance team is your first line of defense against financial crime. Considering that 46% of financial institutions say they’ve experienced fraud, corruption, or other financial crime in the last two years, keeping your financial institution compliant takes more than just checking boxes on a list. Instead, it's about proactively gathering information on customers, monitoring for criminal behavior, leveraging technology to keep the organization safe, and more. But organizations lacking the tools and approaches to prevent financial crime won’t be able to.
Here are five ways that compliance professionals can combat rising financial crime, and keep their organizations safe.
Current Compliance Challenges
Compliance professionals are engaging in a battle on two fronts. The first is keeping up with new regulatory directives designed to keep organizations safe, like the 4th and 5th Anti-Money Laundering Directives, which ask financial institutions to prove that they’ve done their due diligence to understand any possible risks their customers may pose. Pushing organizations to comply with these regulations is necessary to ensure institutions stay safe, but it requires ongoing effort on the part of compliance professionals. And regulations are only going to get tighter.
The other front they're fighting on is combating cybercrime itself, and finding ways to prevent data theft internally but also to stop malicious actors who are looking to mislead financial institutions as well. Cybercrime damages are expected to reach an annual cost of $10.5 trillion by 2025.
If left unaddressed, the consequences could be dire, from stolen data and money to high fines for unaddressed regulatory concerns. In 2021, 80 institutions were fined due to AML-related issues, according to our research. Malaysia’s AmBank was fined $700 million due to money laundering and corruption, Apple Bank was fined $12.5 million for failing to update their AML compliance program, and ING was fined $3,600,000 for lacking information around their customers. It doesn’t take much to fall into the realm of noncompliance — and to pay dearly for it.
The Right Tools and Approaches
Savvy criminals are waiting to mislead financial institutions and their customers in order to steal money and data, leaving institutions not only with the loss but with potential fines over their lack of oversight as well. However, compliance professionals can stay one step ahead with the right tools and approaches to keeping their organization safe.
Primary source intelligence: Compliance professionals need information in order to understand who their customers are, their risk profile, and other key data which will help identify if their customer is a green flag or a red flag. However, as compliance professionals conduct their due diligence and KYC, a Google search won't be enough. KYC and AML compliance professionals need access to clean, accurate, structured data beyond what Google can offer, and may need access to local data or data in person that Google can’t provide. Primary source data can be found across multiple places, repositories, and libraries, and it offers the benefit of being the most updated data out there, ensuring you're not missing any issues due to outdated information.
Artificial intelligence and machine learning: Technology can be an incredible help to compliance professionals, from streamlining the KYC process through more automation and less human interaction to being able to provide more personalized services to customers. These technologies can also be used to assess customer behavior and risk in order for better assessment, can identify adverse media and reputational risk, and more. Compliance professionals looking to streamline and secure their due diligence duties should look to technology for the added help.
Risk rating: Compliance professionals looking to improve their approach should start with their risk ratings, the standards by which regulators determine the safety and viability of their financial processes. However, more customers using financial tools means more criminals as well, increasing the risk of access. Compliance professionals can be prepared by employing the most up-to-date information to keep their organization safe.
Regulatory enforcement: The regulatory environment is only getting more severe as regulators issue more directives and requirements for organizations to follow. And, as seen above, regulators aren't afraid to crack down on the non-compliance they find. However, compliance professionals can be prepared for current and future compliances by tightly maintaining customer records and evolving their recordkeeping practices. The better systems and processes in place, the better compliance professionals will be prepared for the newest regulations.
Ongoing monitoring: As cybercriminals evolve their approaches and regulatory agencies evolve their directives, financial institutions need to keep a close watch on transactions. This is why ongoing, real-time monitoring using technologies like AI will be critical to help identify patterns in customer behavior that correlate with criminal behavior.
Keeping Crime at Bay
Your organization’s compliance professionals are your first line of defense against financial crime—if they have the right tools, resources, and approaches to stage a good fight. However, having outdated KYC procedures, not utilizing the right intelligence, and not leveraging the more recent technology can leave gaps in your knowledge that will be big enough for criminals to slip through.
About the author: Ian is currently Chief Executive Officer of Kyckr, an Australian listed RegTech business providing global KYC solutions to banks, payments services providers and other regulated companies. He joined Kyckr after a thirty-year retail & business banking and wealth management career. Since 2012, he has been actively involved in the UK Challenger Bank sector, holding CEO roles at Arbuthnot Latham & Co Limited, Kensington Mortgages, and Shawbrook Bank. Before this, he was Chief Operating Officer of the Private Banking Businesses in Barclays Wealth and was with RBS for 21 years. His final role there was as Chief Executive Officer of RBS International. He also held the positions of Chief Operating Officer Retail Banking and Marketing Director RBS & NatWest. Ian holds degrees in Economics and Finance from Scottish and Canadian universities and an MBA.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.