Gaps in compliance are enabling the spread of financial crime, including through the absence of formal checks when onboarding third-parties. What’s the value of Enhanced Due Diligence as a strategic tool for providing an early and detailed warning of risk?
- Financial crime remains pervasive, with insufficient due diligence at least partly to blame for criminals slipping through the compliance net.
- Refinitiv’s 2019 innovation survey revealed that 51 percent of third-party relationships had not undergone any formal due diligence checks at the onboarding stage.
- The value of Enhanced Due Diligence in fighting financial crime is in its focused, detailed view of new or existing customers or third-parties, helping to pinpoint risk early on.
With financial crime still pervasive, insufficient due diligence is at least partly to blame for criminals slipping through the compliance net.
Refinitiv’s 2019 survey and report into the critical role of innovation and collaboration in the fight against financial crime analyzed responses from more than 3,000 managers with compliance-related responsibilities at large global organizations.
It revealed that nearly three-quarters (72 percent) were aware of financial crime within their global operations during the 12 months preceding the survey. At the same time, 82 percent felt under extreme or significant pressure from governments and regulators to act to prevent financial crime.
Watch: What is the key to turning the tide on financial crime using emerging technologies?
Respondents further revealed the existence of some significant gaps in formal compliance, with 51 percent of customer, supplier and partner relationships not undergoing any formal due diligence checks at the on-boarding stage.
Closing these gaps is crucial if we are to win the war on financial crime.
The value of Enhanced Due Diligence
Best practice points to the adoption of the risk-based approach, where effort and resources are concentrated in areas of greatest perceived risk. Where heightened risk is suspected, Enhanced Due Diligence should be conducted.
Such research should include detailed integrity and advanced background checks on the entity or individual in question, but once again, our survey confirmed that gaps in this important area remain:
- When asked about the checks they undertake (successfully or not) when on-boarding external relationships, only 35 percent selected Enhanced Due Diligence
- For those who selected Enhanced Due Diligence, just 23 percent consider that these checks are successfully conducted.
Considering that over half of these same respondents (53 percent) believe that any association with financial crime because of lax identification and preventative measures would have a significant negative impact on their corporate value, conducting more successful Enhanced Due Diligence should become a priority.
The value of Enhanced Due Diligence in fighting financial crime is that it provides a focused, detailed view of new or existing customers or third-parties and can pinpoint actual risk early in the game.
Source of Wealth reports
Enhanced Due Diligence research may also include a Source of Wealth investigation, which aims to ensure that clients or third-parties with whom you do business have not derived their funds from illicit activities such as fraud or money laundering.
Source of Wealth reports aim to build a coherent and holistic picture of the source of an individual’s net wealth, including, but not limited to, income from employment, investments originating from the sale of property or businesses, interest earned, and inheritance or divorce settlements.
At Refinitiv, we embrace the concept of combining leading-edge technology and trusted human intelligence in the ongoing fight against financial crime.
This is a view that is echoed by survey respondents.
Some 97 percent of respondents believe that technology can significantly help with financial crime prevention, but notably, 86 percent also believe that humans are a necessary asset to source trusted data and train algorithms to create effective outputs.
Innovation and intelligence combined
This philosophy is reflected in our Enhanced Due Diligence research.
Our in-house researchers and supporting teams, including knowledge management, content management and business process improvement teams, are supported by an extensive global network of vetted in-country resources for relevant and top-quality reputational insight to fill in any risk gaps.
We can provide in-depth research in more than 60 languages and use the most current data and techniques available.
The result is robust and reliable Enhanced Due Diligence that can enable compliance teams to gain targeted insights into high-risk relationships and make better decisions.
Against a backdrop of widespread financial crime and tightening regulatory pressure, don’t underestimate the value of Enhanced Due Diligence as a strategic tool to effectively close the gap between crime and compliance.