Joining The Dots. An Integrated Approach To Tackling Financial Crime

Executive summary

An integrated approach to tackling financial crime improves risk management and customer service.

The pressure to tackle financial crime has never been greater. But tightening regulation, growing demands by customers for integrity in firms' financial dealings and increasing criminal sophistication are combining to create a perfect storm for the financial services sector. Yet current approaches remain a patchwork of fragmented, inefficient, inflexible and, ultimately, ineffective efforts designed around a discrete set of compliance chores.

In times of continuing economic uncertainty, it may seem easier to take the path of minimal compliance rather than trying to change. However, firms need to invest in bringing their data together to create an integrated approach to financial crime. Such an approach will align all business capabilities, including strategy, people, processes, technology and data, towards a more unified view of risk.

An integrated approach, with data and analytics at its heart, will help firms improve their financial intelligence and reduce costs. The insights they extract from their data will not only allow financial crime teams to fulfil their regulatory obligations, they will also be able to join the dots in criminal activities that would otherwise have remained undetected. The insights will also help improve customer services as all customer-oriented activities begin to exploit the synergies in the approach.

Only by folding discrete approaches, such as Anti-Money Laundering (AML), anti-bribery and counter-fraud, into the larger mosaic of enterprise risk and performance management can firms begin to align their financial crime capabilities with other risk and regulatory activities. This will then set the stage for increased business value and improved service performance in a set of activities that the business has traditionally seen only as a cost and compliance centre.

Can financial institutions comply more effectively and efficiently?

A perfect storm for the financial services sector According to the Financial Services Authority (FSA), financial crime includes "... any offence involving money laundering, fraud or dishonesty, or market abuse."1 Although it would seem easy to dismiss financial crime as a purely 'white collar' issue based on this rather clinical definition, many other types of crime are motivated or fuelled by money. In a speech to the annual FSA Financial Crime Conference back in 2005, Sir Callum McCarthy, former Chairman of the FSA, talked about the role financial institutions needed to play in curbing a much wider web of crime. He said, "It is about us all playing our part in the fight against drug and people trafficking, terrorist financing and other only too real social problems. It's about the social consequences of those crimes. It's about fighting the harm on our streets that affects all members of society – including the financial services sector." 2

Over the last 10 years, the imperative to fight crime has meant that firms in the financial services sector have been subject to ever-tightening regulation and legislation, including the Proceeds of Crime Act 2002, the Money Laundering Regulations 2007, the Bribery Act 2010 and the constantly changing UK sanctions regime. Guidance from the FSA also requires firms to "conduct their business with integrity and with due skill, care and diligence, and to take reasonable care to organise and control their affairs responsibly and effectively with adequate risk management systems." 3 Adherence to this guidance not only helps in the fight against financial crime but also helps to build trust and reputation with customers.

Compliance on its own does not control the criminals, of course. And criminals are nothing if not increasingly innovative. In a world where everything and everyone has a digital connection, crimes are growing in subtlety and sophistication, and are becoming much harder for firms and the law enforcement authorities to spot.

Figure 1. Current siloed approach to managing financial crime

But current approaches to financial crime are a patchwork

Despite guidance from the Joint Money Laundering Steering Group (JMLSG) suggesting that firms need to have "close liaison" between those responsible for tackling fraud, market abuse, money laundering and terrorist financing, current approaches remain a patchwork of fragmented...