Guest Comment by Dr Henry Balani
The financial crime landscape is developing at pace and this trajectory is unlikely to change as we head into 2024. Prompted by geo-political challenges, the Russian invasion of Ukraine and the conflicts in Israel, regulators and financial services organisations alike have worked to respond as Western nations have continued to implement an unprecedented number of sanctions programmes against Russian entities and terrorist organisations.
While this fast-moving arena has brought operational challenges, what remains is that compliance will always be a top priority for banks as they juggle regulatory obligations with rising customer expectations, and all with an eye on the bottom line.
Now, more than ever, RegTech has a key role to play in helping institutions to navigate through – and this must be with a collaborative approach that crosses all facets of the industry.
With the Government looking to boost growth and competitiveness by streamlining financial regulation and simplifying accountability for regulators, the months ahead will see increasing scrutiny of regulatory systems to turbocharge the industry.
As regulations and firms’ ability to respond are examined, we must recognise the importance of key stakeholders working together for good, and the place of innovation in the regulatory mix.
For regulations to really be effective, it is crucial that RegTech providers are consulted within the rule-making process. They provide technology solutions that support compliance within financial services, keenly aware of regulations that can impact operational requirements.
As financial criminals increasingly leverage corporations to hide their wealth, the need to identify beneficial ownership has become more important
They have the knowledge to educate regulators on key technological innovation, providing a central voice in the understanding and articulation of how proposed regulations can be adapted for maximum compliance, and this must be tapped into.
This is why, as we look at what will move the needle in 2024, collaboration should be high on the list – particularly between regulators and those at the heart of the game-changing innovation that banks and financial organisations need.
This enhanced communication and joined-up thinking will ultimately result in more effective regulations, more streamlined compliance, and the potential of the technology at the heart of the industry being realised for maximum growth.
As financial criminals increasingly leverage corporations to hide their wealth, the need to identify beneficial ownership has become more important. Banks have always been mandated to identify Ultimate Beneficial Owners (UBOs) as part of their anti-money laundering (AML) obligations.
However, recent global scandals, such as The Pandora Papers, have brought this requirement to the fore. The task of UBO identification is complicated and time consuming and that is why harnessing the power of automation technology, and particularly real-time digital Know Your Customer (KYC) profiles, is essential to a robust and efficient process.
For regulations and solutions to align and have the desired impact, continued collective thought, communication and knowledge-sharing is critical
The trajectory of regulation is largely aligned with UBO identification – demanding more rigour, proof, and transparency – and regulators are acting, with new legislation, such as the recently passed Economic Crime and Transparency Act, which gives increased enforcement powers to relevant authorities, aiming to reduce financial crime within the UK financial system.
In 2024, banks will be required to step up their approaches, reviewing compliance programmes and policies. As such, I’d argue that the time to trust in RegTech solutions, which can allow institutions to demonstrate efficiency and efficacy to regulators, is now.
As banks look to mitigate risk, technology is available to establish a customer’s identity, providing real-time profiles, generated on demand to validate and verify a company and its structure based on available public data, leading to full transparency. This approach allows banks to evidence compliance and risk asses their customers to protect their reputation with a strong KYC process, while also maximising business outcomes.
There is no denying that collaboration will play an important role. Technological innovation means that both data and processes can be shared across different platforms with ease and there is now a greater understanding of the integrated nature of processes to meet compliance requirements.
The global nature of financial crime means regulators increasingly must co-operate with their counterparts and are becoming more reliant on information being shared across borders. Banks recognise the need to provide timely and relevant information on potential financial crime, and the complexity of this challenge requires advanced technology assistance, provided in the form of RegTech.
For regulations and solutions to align and have the desired impact, continued collective thought, communication and knowledge-sharing is critical.
In fact, as an example of how this can work, the FCA, along with the RegTech industry, has driven the concept of shared sandboxes involving regulators, technology providers, banks and other policymakers. This offers a safe and secure environment for the participation and review of new and innovative solutions, while also improving speed to market.
Financial crime is a complex moving issue and for risk to be mitigated effectively, a universal approach, with jurisdictional nuances, is the way forward.
Ultimately, stakeholders share a common goal – stamping out financial crime. For material progress to be seen, industry, Government and regulators must collaborate, with technology a key component.
Dr Henry Balani is Global Head of Industry & Regulatory Affairs for Encompass Corporation
