Combating financial crime and terrorist financing is reliant on effective government policies however, the success of these policies can face many obstacles. Last week the Centre for Financial Crime and Security Studies held an event that highlighted two key challenges currently facing policymakers – information sharing and FinTech. ComplyAdvantage went along to find out more.
Poor information sharing between the public and private sectors has for a long time shielded money launderers from view. At the heart of this issue is the identity of the Ultimate Beneficial Owner (UBO) of a company. The EU is leading the way in rectifying this problem. AMLD4 requires EU companies to list their UBOs on a publicly accessible register. The EU also plans to extend this obligation to companies who are not registered in, but do business in, the EU. Although a considerable step forward, problems still remain around accessibility to these registers and privacy concerns for those who are on them.
Suspicious Activity Reports (SARs) and Suspicious Transaction Reports (STRs) are an important source of information on financial crime. But the lack of uniformity between these forms can create further information sharing challenges. Reporting requirements differ between countries resulting in inconsistency in available information. Additionally, better cross-border channels need to be established for the sharing and dissemination of information generated by such reports. Language also poses a problem to the sharing of these forms as recipients may require a translation service before the information is useable.
Information sharing between countries is vital for tracking terrorist finances. Speakers commented that post attack, information sharing between law enforcement agencies in different countries has been exemplary. But that information sharing between the public and private sectors, especially in regard to information on foreign fighters, needs to be improved to combat the current terrorist threats facing Europe.
FinTech an opportunity for better AML/CTF?
FinTechs have an exciting role to play in improving the current AML/CTF regime. The speakers praised regulators, such as the FCA, for creating regulatory sandboxes where companies can test their innovations in a “safe space” without being stifled.
Electronic Identification (E-ID) methods were highlighted as being especially promising for better ID & V and KYC procedures. As were the opportunities offered by blockchain, which could not only improve identity verification but could also improve wider transparency within the systems that use it.
The challenges and opportunities posed by virtual currencies for financial crime policy were also a prominent topic. David Carlisle argued that FinTechs involved in virtual currencies understand and take very seriously their AML/CTF responsibilities. Furthermore, he argued that they could be part of the solution in fixing the current AML/CTF regime. The problem of defining virtual currencies was cited as one challenge faced by policy makers. Countries such as Luxembourg however, were noted for having taken steps to tackle this problem. By classifying Bitstamp – a Bitcoin exchange – as a payment institution, it has set a precedent for future policy on virtual currencies.
At ComplyAdvantage we see FinTechs having a huge impact on how the industry can combat money laundering and terrorist financing in the future. As FinTechs are agile they are able to work with and adopt the newest regulatory technologies first. As a pioneer of RegTech, ComplyAdvantage has been at the forefront of working with FinTechs to digitize the screening of sanctions, politically exposed persons (PEPs) and adverse media. We look forward to continuing to work with the CFCS in 2017, to establish the roles FinTechs and RegTechs can play in fighting financial crime.