Why banks, regulators and government need to work together to combat financial crime
When it comes to financial crime, criminals are constantly raising the stakes. By using global financial systems and legitimate businesses to launder funds, they perpetuate organised crime all around the world. An estimated £80bn is laundered through the UK every year, but the cost of such activity is more than financial. From the pensioner looking to protect their life savings to the police force seeking to eliminate human trafficking, we all have a vested interest in financial crime prevention.
But what can be done on a large scale – at the level of large businesses, government and regulators – to crack down on these illegal operations? Richard Grint, Financial Crime Expert at PA, an innovation and transformation consultancy, shares his insights on the best course of action.
It’s a crime
The first step in fighting financial crime is understanding its scope. While we might typically think of activity such as money laundering, fraud or market manipulation, financial crime is increasingly broad and varied in nature. For Richard Grint, this complexity is the most important factor when considering prevention strategies.
“Financial crime is a wide ranging area that encompasses a huge amount of activity – both in terms of the crime itself and how people are forced to respond,” he says. “This is the case when we take into account things like tax evasion, bribery and corruption, which is an area that seems to be ever increasing.”
Another aspect which comes into play is the growing digitalisation of businesses and their operations, leading to much greater opportunities for cyber crime. But should we place these specifically digitalised attacks – hacks and cybersecurity breaches – into the general category of financial crime?
“One of the things that has become increasingly apparent over the last five or ten years or so is that there is this real convergence of risk across the cyber landscape and – in particular – the fraud landscape,” notes Grint. “There is a real blurring of lines. You could make the distinction between the two which is that fraud is anything behavioural rather than a security breach, but in reality there is a real overlap between the two.”
Partners against crime
In the context of such a complex, globalised, and sophisticated financial crime landscape, it can be difficult for individual entities to know how to respond. As Grint notes, the need to connect different members of the ecosystem in order to fight illegal activity was what motivated PA Consulting to produce their recent report – Partners Against Crime.
“It used to be the case,” says Grint, “that if each individual entity in the ecosystem did their part – if banks were compliant and the regulator did their job and the tax authority did their job – then financial crime would be prevented. But having spoken to people across public and private sectors in multiple countries, there was increasingly a recognition that this was no longer the case. As things get more sophisticated and more joined up, the authorities and financial services have to be equally joined up and equally advanced in how they respond. Otherwise people are able to exploit gaps in the system.”
Collaboration, data sharing and technology
PA Consulting’s research illuminated three key points which industry players must focus on to stand the best chance of restricting financial crime. If financial bodies, regulators and individuals commit to working together, sharing their insights, and embracing new technology, they will be better placed to take on a complex network of sophisticated criminal activity.
“Collaboration at a fundamental level invokes a real philosophical point about the willingness of every party in this ecosystem to discuss with each other what they are looking at, what they are seeing, and how they are responding,” says Grint.
“One of the things we found when we did the report is that often banks wouldn’t get the insights from public sector organisations, and public sector organisations themselves often weren’t aware of what banks were looking at, or the amount of data they held.”
This emphasis on collaboration invokes a notion that is perhaps contradictory to longstanding business operations – the desire to protect your own data and intellectual property. Nevertheless, says Grint, data sharing is better for these businesses in the long run.
“The people we spoke to increasingly realise that financial crime is so detrimental and so complex, that actually – the notion that you get a competitive advantage by being better at compliance or better at risk management – has gone out the window. People are recognising that if you want to do this effectively you have to talk to each other and you have to work together. People are now willing to share their data, to talk about what they’re doing… They appreciate that no one entity has the full picture of what’s going on.”
National Economic Crime Centre
In October 2018, calls for better connectivity of members of the ecosystem were answered with the creation of the National Economic Crime Centre (NECC). Founded in collaboration with members of the National Crime Agency, Financial Conduct Authority, and Serious Fraud Office – amongst others – the NECC coordinates the UK’s response to economic crime.
For Grint, the NECC is a huge step forward in providing what the industry needs to tackle this issue.
“The NECC puts the UK at the forefront of doing things the right way, in that you’ve got one body (albeit one that is complex and multi-agency…) that is actually able to take responsibility. It takes ownership of the gathering of data, the sharing of data, the sharing of trends, ideas, encouraging collaboration through technology and even just verbal forums…”
Given the need to always remain one step ahead of the criminals, the NECC’s mission is extremely difficult. In fact, such is the nature of financial crime, that even when organisations do everything in their power to protect themselves, criminals only need to get lucky once.
Compounding this issue is a significant lack of global cybersecurity talent. In a recent survey more than half of companies reported a problematic shortage of cybersecurity skills, and there may be as many as 3.5 million unfilled cybersecurity positions by 2021.
“It’s a huge challenge across this space, getting people with the right capabilities to respond,” says Grint. “There is a broader, more systemic angle around getting people who have been involved in cybersecurity from an earlier age. Government programmes have a key part to play in that, but the talent gap will continue to be a problem.”
“We have seen that there are plenty of initiatives both internationally and in the UK, which make it look promising that the skills gap will close over the next few years. But for now it is still going to be an issue.”
The UK may have taken a few steps in the right direction in the fight against financial crime, but it seems unlikely that we will ever eradicate it completely. By pursuing the principles of collaboration, data sharing, and staying up to date with technology, however, we are in a much better position to take a stand.
To read the full report from PA Consulting click here.
For more insights from industry experts sign up to our free weekly newsletter.