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Tides rise and fall: How to navigate Financial Crime Compliance in the time of COVID and beyond

Efficient Frontiers International

31.03.2021

Navigating financial crime during a global pandemic is much like navigating the Suez Canal: it takes expertise and finesse, and one wrong move can derail the entire process and can cost millions. Successful navigation depends on you trusting your team, your processes and your technology.

Earlier this month, EFI held a webinar in collaboration with FINTRAIL. The webinar sought to explore the pandemic’s impact from a financial crime fighting perspective on both people and technology, and what the ‘new normal’ looks like for the financial crime team. One thing made clear from our panel discussion was that while COVID has brought about huge challenges, it has also invigorated many financial crime initiatives.

While people and technology are arguably the two most important elements in a Financial Institution’s (FI’s) fight against financial crime, it is the regulatory developments and enforcement activities which shape and guide how we apply our people and technology solutions.

Enforcement

In the UK, the Financial Conduct Authority (FCA) started 2021 with a bang, announcing it was commencing criminal proceedings against National Westminster Bank Plc in respect of offences under the Money Laundering Regulations 2007 (MLRs 2007). This is the first ever UK criminal prosecution under the MLRs against a bank.

The FCA’s move highlights that while criminal prosecutions under the MLRs are extremely rare, authorities are not afraid of taking a tough stance against FIs or any regulated entities who fail to comply with Anti-Money Laundering (AML) regulations and that the level of regulatory scrutiny of FIs’ AML and counter financing of terrorism (CFT) controls remains high.

This case demonstrates that despite the challenges brought about by the pandemic, financial crime remains a high priority for the FCA. Non-compliance is costly and will not be tolerated, regardless of the conditions.

Regulation

At the beginning of last year, regulators and supervisory bodies began issuing guidance to support businesses during COVID, showing some flexibility regarding their AML/CFT systems and controls, on a risk-assessed basis. However, in the UK, an update on 7 February 2021 highlighted that the FCA’s statement regarding ‘Systems and Controls in COVID’ no longer applies, indicating firms are expected to continue with business as usual activities.

While a level of flexibility was allowed, compliance is not negotiable, firms are required to constantly adapt to the changing environment to ensure regulatory expectations are met, despite the increasing demands and pressure on resources.  Our webinar panel described their organisations needing to adapt on almost a daily basis as the pandemic evolved.

This constant need for adaptation shows no signs of slowing, as international bodies pick up the pace, with a large number of publications issued so far this year. The European Banking Authority (EBA) has issued their biennial opinion on the risks of money laundering and terrorist financing (ML/TF) affecting the European Union's financial sector, just days after updating their Guidelines on Money Laundering and Terrorist Financing Risk Factors. Meanwhile, the Financial Action Task Force (FATF) have released new guidance as well as several publications. These activities indicate more change is coming.

A lot has changed in the last year and we have more change yet to come, but one thing that remains the same is the importance and power of both people and technology in the fight against financial crime.

Technology

COVID has undoubtedly been a catalyst for wide scale changes to technology and the acceleration of digital initiatives. Organisations have had to swiftly open up digital channels to keep businesses functioning, introducing digital onboarding, for example. For some organisations, like Challenger Banks, this has led to huge increases in their customer base, which has created its own challenges as they work to cope with the sudden boom in activity. It has not been as easy for more traditional banks either, where the pace of change is naturally slower. Pandemic or not, the move to digital onboarding was inevitable, the pandemic just accelerated the process.

In a recent interview Dr Marcus Pleyer, FATF President stated, ‘You cannot make AML more effective by using digital tools only – you need trained people’ and ‘it’s always the right mixture between human resources, skills and digital tools.’

This is a reminder to us all, that to effectively combat financial crime, it is essential that technological innovation is supported by knowledgeable individuals, the implementation of robust governance and controls, as well as efficient and effective compliance.

People

Financial crime teams were already under pressure from near constant regulatory and technological changes. When the pandemic hit, they suddenly faced an additional challenge as they were forced to transition to remote working overnight, putting another huge strain on organisations’ most important assets, their people.

The implementation of short-term processes and procedures to assist in remote working were just that, short term fixes. At the beginning of the pandemic, many teams were very successful with their people, demonstrating just how agile and adaptable they are.  However, as the lockdowns continue, the challenges organisations and employees face have increased.

Whilst it is easy to focus on the negative aspects of remote working in the pandemic, it is clear that people focused initiatives have also been accelerated during COVID. This was supported by our webinar poll, where 71% of respondents said their people initiatives have accelerated in the last year.

There have been countless discussions on the necessity of promoting employee wellbeing, engagement, learning and development, all of which have positive impacts on the quality of people’s working lives, their motivation, and productivity. This is an industry wide positive that we should strive to learn from and maintain.

Conclusion

Much like navigating a gargantuan container ship through a narrow canal, combatting ML/TF needs to have an all hands on deck approach and continue to be a collaborative global process. The pandemic has accelerated technology and people initiatives across all sectors, in the fullness of time, we will be able to evaluate the full impact of COVID on global collaboration initiatives in the fight against financial crime. Until then, we must keep watch, understand the currents, and pay attention to the tides.