Financial crime: UK firms must improve compliance

Financial services firms in the United Kingdom must improve key compliance areas to combat increasingly sophisticated financial crime (FinCrime), according to a survey by fscom.

Its Fincrime Compliance Report 2017 looked at areas of high and low risk in authorised payment institutions, electronic money establishments, challenger banks and cryptocurrency firms.

The research explores a range of compliance vulnerabilities in practice. It also provides insight on how firms have improved their compliance procedures and thus reduced their own regulatory, reputational, and financial risk exposure.

The key compliance areas were PEPs and Sanctions, RBA (Risk-Based Approach), CDD (Customer Due Diligence), Monitoring (Transaction Monitoring and Ongoing Monitoring), Training, AML (Anti-Money Laundering) Policies and Procedures, and MLROs (Money Laundering Regulation Officers).

Figures revealed general improvements in the overall risk rating, with the overall risk figure for 2017 being reduced. However, despite a decline in high risk findings, both low and medium risk findings have increased, fscom says.

The research showed that in the area of PEPs and Sanctions, the risk rating almost halved compared to in 2016. The same applies to the risk posed by MLROs, which also halved.

While figures showed improvement for CDD, three out of four companies still face significant CDD issues. RBA was the highest risk category overall. Top issues in this compliance area included risk assessments not being conducted effectively, alongside due diligence issues and a lack of documentation of RBA processes. 

The research also highlighted that Transaction Monitoring (TM) issues are still too common with lack of scrutiny and ineffective TM systems being the main issue.

Philip Creed, Director at fscom said, “Whilst several improvements have been made industry wide, there are key areas where I would expect to see further improvement next year. 

“Transaction monitoring systems remain a problem. Alerts are generic and could be implemented better, therefore we fully expect this to be a high priority for firms and regulators over the next few years. 

Higher focus must also be placed on staff training. Firms need to view it as a continuous process that is essential for the development and protection of the firm, rather than a tick box exercise.”

fscom also suggests that financial firms must turn to technologies, such as AI and RegTech, to provide efficiency savings in their efforts to prevent money laundering and terrorist financing.

** Commercial Crime Services’ Financial Intelligence Bureau (FIB) conducts enquiries and investigations into matters associated with money laundering, fraud and suspect documents.  FIB is a direct response to the increased sophistication of financial instrument crime used in money laundering, fraud and terrorism financing. FIB’s unique database provides intelligence on the modus operandi and parties involved in suspicious financial transactions. The database is updated daily by FIB’s members worldwide and is invaluable for transaction analysis and fraud prevention, money laundering and counter terrorism financing checks.