Three members of the ComplyAdvantage team joined more than 200 individuals from 100 companies to participate in the FCA TechSprint in May.
Head of Financial Crime, Livia Benisty shares her insights below on what the team learnt throughout the week.
We hear all the time how only 1% of financial crime is being detected. Essentially this means regulators and the financial industry are failing to make a dent in the growing flow of funds resulting from illicit activity, including drug smuggling, human trafficking and forced labor.
Legacy technology to fight financial crime is competing with increasingly tech-aware criminal networks and operatives. Add to that the possibility of new financial tools and instruments and the problem escalates.
As the FCA’s Executive Director of Supervision for Investment, Wholesale and Specialists, Megan Butler noted in her introduction to the event, “Technology is increasingly essential to combating Financial Crime…Regulators have used traditional supervisory tools for many years. We now need to think differently”.
The 16 use cases presented ahead of time focused predominantly on transaction monitoring, and how technology could be used to better detect proceeds of crime and collect relevant data for analysis. Other examples included SAR reporting and the improvement of a feedback mechanism to financial institutions, as well as onboarding of customers and possibilities for cryptographic tools to store and validate ID.
Attendees were asked to leave their day jobs at the door and come together as teams to solve the problems in front of them.
Here are our key takeaways from the event:
Over ten of the 16 teams used network analytics and, in particular, graph analysis as part of their solution. It’s clear financial crime can’t take place with one or two individuals in isolation; inevitably networks, either of people or financial intermediaries, are put to use. This is seen clearly when looking at large scale financial crime cases such as the Russian laundromat, or the 9/11 terrorist attacks. The ability to detect and act across those networks is essential, and network analytics doubtlessly has a fundamental part to play in the future of transaction monitoring.
That said, I believe there are three key issues to bear in mind.
- The implementation of network analytics deals with the ability to link data where no immediate relationship is detected. This is only useful if the quality of the data is high to start with, something many large financial institutions with legacy systems and older accounts struggle with. Without this, tools implemented will be largely ineffective.
- A key part of what makes network analytics and graph analysis attractive is the visual element. Having been responsible for reviewing transaction monitoring alerts in a previous life, trawling through a series of transactions to build up a picture of several relationships across an entity was, at times, painful. An easier way to view the information and see the linkages in a quicker way would have been much more effective, and very much appreciated.
- There was a lot of focus on the power of sharing information between supervisory bodies, and the ability for them to use network analytics to better identify criminal activity. This potentially misses a key point: the information that exists within a single financial institution. There are recent investigations into large banks which show how financial crime can occur within an institution but across the silos that exist between different banking products, client types, and jurisdictions. Working across those barriers is a good place to start.
Information sharing was a topic which underlined most of the issues discussed. Solutions either dealt directly with the issue of how to enable better sharing of information in the face of issues such as data privacy and “tipping off”, or acknowledged that lacking the ability to better share data created a challenge. Information sharing across banks is also something that needs to be solved, as well as within large institutions across business lines, as mentioned above.
The FCA walks the walk when it comes to innovation
“The FCA is supportive of firms using technology to improve compliance. But we also recognize that there is reticence around innovation. Especially when it’s judged to add regulatory risk”.
At every conference or roundtable I’ve attended recently, we’ve discussed the issue of how regulators will react to the deployment of new technology. Frequently we refer to educating the regulators about the technology available and how it is implemented. The FCA is putting itself at the forefront of the argument by saying they recognize that concern but want to work with covered institutions to figure out the way forward.
The FCA emphasized that they are interested in outcomes. Those of us that have worked as compliance officers will recognize the importance of that statement. Beyond this, Head of RegTech and Advanced Analytics Nick Cook and his team are pushing change forward, creating ambitious events like this, and driving conversation. It’s an exciting process to be part of.