The third FinCEN leak, the finalisation of Brexit negotiations, and worldwide economic disruption made 2020 a difficult year for the banking industry.1 While 2021 has been a time for recovery, it has also witnessed some of the industry’s most significant compliance shifts to date.
Banking is an evolving industry, impacted by both technological developments and wider social shifts. For example, as many as 97% of millennials now use mobile banking.2 Keeping up with these trends and resultant regulatory change is crucial.
With the Financial Conduct Authority (FCA) updating its stance on legal liability regarding unacted upon risks, it’s clear that increased awareness and improved compliance procedures are required.3 This article considers how compliance in the banking industry is changing, and how financial institutions can keep on top of these notable shifts.
Suggested reading: If you want to learn more, specifically about how anti-money laundering best practices are evolving, check out our report — The AML Investigation Revolution
Open source data (OSD) refers to all publicly available information. For example, census data and other government information sources, corporate reporting, crime statistics, open social media data and more.
The FinCEN leaks revealed how top banks allowed known risk actors to launder large amounts of money. Following this, 6AMLD regulations have now come into force, extending criminal liability to professionals who fail to act on or recognise potential risks.4 Although still speculative, 6AMLD raises interesting questions regarding the use of open source data. The public nature of OSD places possible pressure on financial institutions to use this information because not doing so could be considered a failure to recognise potential risks.
Regardless of compliance considerations, OSD presents significant benefits to investigation best practices, specifically when it comes to AML and KYC. By cross-referencing the vast array of public data, connections can be made regarding individuals, groups and institutions that would simply be missed within investigations solely focused on internal records. The challenge is sorting OSD in order to remain focused on relevant information, which brings us directly to the second change on this list.
Intelligence is data that has been sorted and analysed to answer specific and relevant questions. An intelligence-led shift refers to the use of intelligence — whether from national risk assessments, government and law enforcement, or data leaks — as triggers for undertaking proactive investigations into potential AML and financial crime risks.
Incorporating an intelligence-led approach into an AML framework allows financial institutions to be more effective at fighting financial crime, as it reduces reliance on transaction monitoring and customer screening as the only approach to identifying potentially suspicious activity. In order to implement an intelligence-led approach, banks need access to more data, and have the ability to make sense of it. Although there are broader implications to this cultural shift, critically, this comes back to the effective use of OSD.
OSINT (Open Source Intelligence) describes the application of structured intelligence processes and technologies to OSD. For example, one critical process is the Intelligence Cycle, which covers five crucial elements of an investigation. These are —
Following structured processes allows you to organise data in a way that can drive effective decision-making. Taking an intelligence-led approach to investigations may soon become a cornerstone of AML/CTF compliance, and alongside it, the need to make sense of open source data.5
Suggested reading: For more context on intelligence-led best practices, check out our recent article — 5 Advanced Open Source Investigation Techniques.
The siloed nature of potentially useful data is an ongoing challenge for financial institutions and law enforcement alike. Particularly in the context of big data impacting anti-money laundering strategies, it’s critical that intelligence is shared between organisations so that key patterns and reoffenders can be identified.
Historically, the need to address these shortcomings has led to calls for public-private partnerships from all corners, including the EU’s Commission for AML unification.6 Anti-financial crime alliances, like the UK’s Joint Money Laundering Intelligence Taskforce, are beginning to demonstrate that closer collaboration between government agencies and FIs can lead to the improved awareness of financial crime threats and risks.7
As more public-private partnerships appear, financial institutions must ensure that they’re able to integrate external and internal data sources in a way that allows them to put shared information to use.
1st January 2021 saw the end of EU law across Britain, meaning not only that financial institutions in the UK lost the right to trade in the EU, but that financial regulations largely outlined by EU law were no longer applicable. It remains unclear exactly what the outcome of this will be. However, there are two prominent schools of thought —
Regardless of how Brexit eventually impacts the trajectory of UK financial regulatory requirements, there are changes that are already having an impact, three of which include —
Informed changes to compliance frameworks effectively call for a more proactive approach to protections and consumer onboarding, requiring not only wider access to relevant information but also the ability to disseminate those insights on a justifiable consumer level.
Cryptocurrencies are digital currencies most often transferred through peer-to-peer transactions. The lack of regulation surrounding crypto-asset transmission has led to a widespread perception that they carry a high degree of risk.10 However, with cryptocurrency ownership spanning across 9.8 million Britons, sidestepping this shift is no longer an option.11
The need to meet this trend head-on has resulted in regulatory change. Particular risk factors being addressed by regulators include —
The inevitability of crypto increases means that understanding and adherence to these new regulations is the only way for banks to continue to compete and comply.
The only certainty in banking compliance right now is change. Fortunately, the industry has the tools at its disposal to gain the oversight required to prevent compliance slip-ups, one of which is OSD. With the help of sophisticated OSINT solutions, actionable insights can be extracted from OSD, helping to maintain high levels of compliance and improving investigatory best practices simultaneously.
At Blackdot, we’re actively working to bring open source investigation capabilities to the financial sector. Our tool, Videris, makes this a reality. Originally developed for military and government usage, Videris is now helping with regulatory compliance across the private sector thanks to the use of —
Fundamentally, you need a tool that helps you to adapt to changes and remain compliant. To see first-hand how Videris could work for you, book a demo with us today.