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Fighting financial crime in Asia

Robin Lee
Robin Lee
Market Development, Risk and RegTech

The fight against financial crime in Asia requires innovative approaches that go beyond just box-ticking. Our 2019 ASEAN Regulatory Summit discussed what it takes to create a gold standard in AML and CFT, including greater collaboration among regulators and financial institutions, and a better understanding of how criminals operate.

  1. Faced with rising compliance costs and regulatory divergence, the 2019 ASEAN Regulatory Summit called for a fundamentally new approach on how to fight financial crime in Asia.
  2. Regulators and financial institutions, as well as teams within banks, must get better at sharing information, and should work more closely to fight financial crime.
  3. Financial institutions must adopt a robust tone from the top in order to streamline financial compliance in Asia.

Complexity is a word compliance professionals commonly cite when describing the regulatory environment in Asia. And for good reason.

Jurisdictions across the region vary greatly in terms of Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) rules, and how these are enforced.

In Singapore, for example, incorporated companies must file a register naming all individuals who own more than 25 percent of a firm’s stock with the Accounting and Corporate Regulatory Authority.

In the event that no such information is provided, firms are removed from the nation’s Registrar of Companies. At the time of writing, Singapore is the only Southeast Asian nation known to have such a register.

A further challenge is the ever-changing nature of regulation, where authorities continuously make amendments to tackle financial crime and better manage risks.

In a mere two-week period during late 2018, for instance, Indonesia’s Financial Services Authority (OJK), introduced 10 new laws directly impacting the banking sector.

To avoid detection from authorities and the market, perpetrators are becoming increasingly sophisticated, using technologies and methods that keep their activities hidden.

Of the small proportion of financial crimes that are stopped, the overwhelming majority of these are reported by whistleblowers, rather than through investigative measures.

In meeting these challenges, financial crime compliance costs continue to surge.

The status quo, many believe, is simply unsustainable. In a poll conducted at the 2019 Refinitiv ASEAN Regulatory Summit, the market called for a fundamentally new approach to AML regulation.

How effective do you think the current AML rules are in fighting crime? How to fight financial crime in Asia
Source: 2019 Refinitiv ASEAN Regulatory Summit poll

Financial crime in Asia

With financial crime usually involving multiple organizations and spanning numerous jurisdictions, detecting irregularities is challenging for regulators and the market alike.

Richard Carrick, Regional Head of Financial Crime Assurance at Barclays, explained the industry’s dilemma.

He said financial institutions can only identify patterns within their own organizations, regulators are inhibited when it comes to cross-border matters, and some industry actors are regulated by non-financial statutory authorities.

This weakens the law enforcement ecosystem of the financial sector.

The trafficking of illegal wildlife highlights this issue. Proceeds are usually moved from country to country using a combination of formal and informal financial flows, including bank deposits, cryptocurrencies, cash-on-delivery, and mobile payments.

Panel discussion on creating a gold standard for AML and CTF with Justo Ortiz, UnionBank of the Philippines; Simon Chung, Standard Chartered Bank; Jessica Chuah, Tokenize Exchange; Richard Carrick, Barclays; and Che Sidanius, Refinitiv. How to fight financial crime in Asia
Panel discussion on creating a gold standard for AML and CTF with Justo Ortiz, UnionBank of the Philippines; Simon Chung, Standard Chartered Bank; Jessica Chuah, Tokenize Exchange; Richard Carrick, Barclays; and Che Sidanius, Refinitiv

Holistic view of risks

Identifying transactions that use a variety of these can be difficult for law enforcement and banks.

In the event that criminal activities are spotted, perpetrators exploit regulatory arbitrage created by legal loopholes, weak law enforcement and investigation capabilities, and a plethora of other regulatory flaws found in many markets around the world.

By collectively establishing a single holistic view of cross-border crimes, where all actors regularly communicate and agree on enforcement measures, information gaps can be lessened, and illegal acts better detected.

Carrick also highlighted silos that exist within banks.

For instance, AML and sanctions teams typically sit separately from one another, despite accessing the same data. Carrick called for the various compliance functions to be housed under one roof, creating a single bank view of all risks.

Watch: What will be the next game changer in the fight against financial crime?

Compliance starts at the top

According to Justo Ortiz, Chairman of the Board at UnionBank of the Philippines, the responsibility of creating a gold standard for financial crime compliance rests with leaders, and the organizational culture they instill.

Leadership involvement in financial crime compliance in Asia, however, is mixed, according to a poll taken at the ASEAN Regulatory Summit.

When asked if there is sufficient level of attention paid to AML at senior levels, 50 percent of respondents agreed, 30 percent said there is a lack of understanding among management of their institution’s risk and control frameworks. A further 20 percent said there was very little focus put on AML by senior executives.

Is there a sufficient level of attention to AML at senior levels? How to fight financial crime in Asia
Source: 2019 Refinitiv ASEAN Regulatory Summit poll

Identifying and stopping financial crime requires innovative approaches that go beyond standard ‘box-ticking’ practices, said Ortiz.

Practitioners who are motivated to solve criminal activities are usually more successful in their efforts than those merely performing what is expected.

Technology as an enabler

With the increasing use of technologies such as AI, machine learning and blockchain in the compliance space, financial firms are able to detect and analyze suspicious transactions in real-time. Access to accurate and timely data is key to streamlining this process.

Yet despite tools being openly available, many firms continue to operate tasks such as onboarding and monitoring manually.

According to Carrick, organizations are often reluctant to introduce new technologies and change processes, as they fear these will attract unnecessary scrutiny: “If they change, regulators may think differently.”

The solution, he believes, is for the market and technology providers to engage with authorities to educate them about new tools, understand their preferences, and develop solutions that meet these expectations.

A consideration when investing in new technology is returns.

Simon Chung, Executive Director and Head of Financial Crime Compliance at Standard Chartered Bank, pointed out that with an overwhelming proportion of financial crime going undetected, it can be challenging for firms to justify the expense needed to buy or develop solutions. Only those deemed mandatory are commonly used.

Think like a criminal

The market’s lack of appreciation for how financial crime is conducted is a core reason why so few cases are detected, said Carrick.

“How many people in a bank know how to launder money?” he questioned. “They know what the rules are, but if they don’t understand how money gets laundered, they can’t detect and mitigate AML risks.”

For banks and regulators to improve financial crime compliance in Asia, the market needs a greater understanding of how criminal activities are executed. This requires close dialogue between financial firms, technology providers, regulators, and, most importantly, law enforcement agencies.

Only with all parties working together, said Carrick, will the market be able to truly tackle financial crime, and create a gold standard for AML and CFT in Asia.

For more information on the changing regulatory landscape for AML and CFT in ASEAN, download our industry report.

To learn more about the role financial technology and partnerships play in the fight against financial crime, download our “Innovation and the fight against financial crime” report.