Introduction – The Financial Crime Challenge
The reality is that effective AML regimes rely on a combination of robust
laws, regulations and practices that are aimed at preventing and
detecting the illicit process of making illegally obtained funds appear
legitimate.
This is not easily achieved.
It could be argued ‘we’ – the financial services industry & related
professional services- are NOT particularly effective in combating
financial crime.
As evidence, consider the following:
• The estimated amount of money laundered globally is 2% to 5% of
the global GDP, or approximately $800 billion to $2 trillion per
year;
• Over $50bn in financial penalties have been levied against
financial institutions since 2008.
These numbers quantify a serious societal problem that potentially
undermines the financial system’s integrity, national security and how we
protect legitimate businesses and their consumers.
In response to this challenge we have seen an ever more rapidly
evolving legislative and regulatory environment and increasing
operational demands on the financial services industry.
But does this solve the problem?
I would contend we need to do more, and encouragingly, global
regulators are increasingly evaluating the potential of technology to help
us combat/prevent financial crime.
The Role & Evolution of the Compliance Function
In the context of this article, the traditional role of the compliance
function is to ensure organisations adhere to their legal and regulatory
requirements to mitigate financial crime risks.
As technology changes the way financial services are provided, and
innovation brings new products/services to market, it is imperative that
the compliance function evolves and adapts to an ever-changing
regulatory environment.
In particular, the financial services industry has undergone significant
change in recent years, with increased regulatory demands and newly
emerging financial crime typologies.
This reality necessitates an evolution in the compliance function as it
adapts to new regulations, technologies, and best practices to ensure
effective risk management.
The question is how best to meet this challenge? How to effectively
combat financial crime in an increasingly dynamic and complex global
environment?
Embracing Technology
A significant part of the solution is creating an awareness of
technological solutions.
Technology can play an increasingly crucial role in financial crime
detection and prevention by enabling faster and more accurate data
analysis, enhanced risk assessment capabilities, and improved
regulatory compliance.
Technology can create opportunities for the compliance function and the
prevention of financial crime in a number of various (evolving) ways.
Namely – not exclusively:
● Real-time monitoring and detection capabilities;
● Dynamic risk identification and scoring;
● Improved data analytics and trends insights;
● Automated compliance processes.
Adopting Emerging Technologies & Solutions
We are experiencing a dynamic and highly innovative adoption of
technological solutions across the financial services sector, and in the
context of the compliance function so-called RegTech’s are developing
solutions utilising various emerging technologies.
It is important to acknowledge there are still limitations and challenges
that need to be considered – ongoing system testing, data access,
quality and consistency, SMEs to interpreting results accurately – but
there are several identifiable areas where a more digitised operating
environment creates significant opportunities to improve upon the
detection/prevention of financial crime.
For example – not exclusively:
AI / ML Capabilities
• The ability to analyse vast amounts of data;
• Identifying transactional and behavioural patterns and anomalies;
• Adapting and evolving detection as new typologies and threats
emerge.
NLP
• The capacity to analyse unstructured text data;
• Reduce inaccurate or false information and false positives;
• Improve screening capabilities;
• Improve accuracy of customer records and risk profiles.
Digital Identity
• Strengthen and improve identification and authentication;
• Enable non-face-to-face onboarding;
• Prevent identity fraud and unauthorised transactions.
LLMs (ChatGPT)
• Potential to process and extract insights from a wide-range of text
sources;
• Assist in identifying complex money laundering schemes;
• Generate reports with relevant insights.
Creating Talent – Enhancing Knowledge & Skills
To optimise these opportunities I believe creating an awareness – an
innovative mindset – that is underpinned by the requisite skills sets is
critical to the contemporary and future compliance professional –
especially in leadership roles.
There is no denying continuous learning is essential in today’s rapidly
evolving technological landscape.
For me the key is that learning providers enable individuals to stay
updated with the latest advancements, acquire new skills, and adapt to
changing industry demands.
This also is not always as easy as it sounds and I believe there is work
to be done in creating the right skill sets for risk and compliance
professionals.
At PAT Business School we are committed to providing industry focused
education/training that provides the opportunity for learners to enhance
their technological skills and literacy.
Delivered by industry practitioners, focused on current and evolving best
practice, we are empowering the financial services industry to effectively
embrace technology, and specifically leverage the benefits of
technological solutions within the compliance function.
Conclusion – Technology & Talent
I have tried to summarise the evolving – increasingly strategic – role of
the compliance function and the importance of leveraging technology in
combating financial crime.
There are a number of key themes we need to address collectively and
individually, for example:
● Utilising advanced analytics and artificial intelligence to enhance
detection and prevention capabilities;
● Constantly assess the effectiveness of technology solutions and
make necessary improvements;
● Staying informed about emerging technologies and their potential
impact on financial crime prevention;
● Adopting an agile and adaptable approach to stay ahead of
evolving threats.
I have also tried to highlight the significance of continuous learning,
training, and adopting industry best practices, in enabling risk &
compliance professionals to enhance their skills.
This can be achieved, but to do this we must support each other in a
number of ways, for example:
● Maintaining an awareness of regulatory requirements and changes
in the financial crime landscape;
● Fostering a culture of compliance and ethics within the
organisation;
● Collaborating with industry peers and share best practices;
● Investing in continuous training and development of compliance
professionals.
In my opinion, the opportunity for Ireland to continue to grow as a
financial centre, and attract new investment, is to a great degree
dependent on how we adapt to technology innovation and commit to the
education/training of our risk & compliance professionals.
To work towards this objection, I hope this short article helps highlight
areas where we need to focus upon, and I have no doubt we can do this!