Collette Smith, Chief Transformation Officer, SmartSearch
Dirty money moving through the black market is notoriously difficult to monitor. The National Crime Agency does its best, estimating that £100bn of illicit finance is laundered through the UK every year, £12bn of which originates from within the UK itself and the rest of which is imported.
While these estimates are alarming, the scary thing is that the actual amount of money being laundered each year in the UK is likely significantly larger. After all, people traffickers, drug smugglers and terrorists are hardly filling out their CT600s each year for HMRC.
These people and their actions have devastating consequences on society and represent the real-world impact of money laundering. As black-market capital bypasses the economy, the UK taxation purse is also denied, meaning that vital public services – which many agree are already at breaking point – are deprived of revenue.
Fortunately, regulators have recognised the scale of the issue and have responded with strict anti-money laundering (AML) rules to combat rampant financial crime. Many companies support this action, with independent research from SmartSearch finding that 38% of financial service firms – one of the UK’s most regulated sectors – believe financial crime is one of the biggest challenges they face.
However, tightening the reigns does come at a cost. The already significant compliance burden grows, with financial services companies worried about balancing compliance demands with business growth. According to SmartSearch’s research, 81% of financial service firms worry about their ability to comply with current regulations, with 80% believing that regulations are stunting their growth, due to the time and resource required to remain compliant.
It has become clear that a change is needed in how financial service firms approach compliance.
Levelling the playing field with technology
The UK’s financial services industry over relies on cumbersome manual processes. Too many due diligence checks are still performed manually in service of AML, Know Your Customer (KYC) and Know Your Business (KYB) mandates. With bad actors increasingly using more sophisticated technologies to carry out crime, businesses must do the same. Otherwise, using manual compliance processes to thwart their efforts will leave them hopelessly ill-equipped and outmatched…
Embracing technologies and services that can increase accuracy of document verification, as well as support faster, more efficient compliance processing will help to level the playing field. Only then can they hope to catch tech-savvy criminals who would otherwise slip through the net using convincingly faked identity documents, or by concealing a sanctioned or politically-exposed-person (PEP).
A different operational approach is also needed. By adopting a digital-first strategy, financial service firms can streamline their compliance process, reducing the associated time, resource and costs and enabling them to win customers through trusted identities.
Currently, most financial service firms must commit resources to understanding their regulatory exposure, work out the operational implications and then implement the changes needed to remain compliant – all without external support.
As financial crime rises and regulation tightens, this approach is not only unfair for them to manage but also insufficient given the more sophisticated identity concealment tactics they’re up against. Fortunately, a new breed of specialist tech and compliance service outsourcers have emerged to relieve the pressure on financial service firms struggling to keep up. So powerful is this model, that many businesses across regulated sectors are finding it transforms a crippling compliance burden into a strategic advantage.
Engaging a specialist partner can help a financial services firm rapidly evolve by:
1. Adopting digital solutions: Leveraging tools like automation to streamline compliance processes, reduce manual workloads, and keep the business competitive in an evolving landscape.
2. Identifying specific needs: There is no one-size-fits-all solution. Tailoring solutions to industry-specific risks is a must, and enables companies to address their unique regulatory challenges more effectively.
3. Collaborating for resilience: Working more closely with regulators, advisors, and technology providers to ensure the business stays ahead of regulatory changes, while also sharing best practices and reducing uncertainty.
Both criminal and legitimate industries are digitising at record speed. People, money, goods and services are also flowing across borders and jurisdictions faster and in greater quantities than ever before.
Against this rapidly changing backdrop, what is clear is that compliance cannot be viewed as just a box to tick; it must be treated as an ongoing journey. It is vital for financial services firms to change how they engage with compliance and due-diligence processes to ensure they strike the balance between managing their regulatory exposure and driving business growth, all while protecting themselves and their customers from financial crime.
