By Sean Vickers, Global Head of CLM, Delta Capita.
When it comes to having the resources to fight financial crime – have banks ever had it so good? Think about it, not only has technology never been more sophisticated, but financial institutions can now call on armies of consultants to advise on compliance, not to mention thousands of people to work across KYC and client due diligence. So why, despite all of this, do criminals hell bent on wreaking havoc across the global financial system keep finding their way through the cracks?
Well, it is not as if the banks, the multitude of tech vendors and advisers are all sitting on their hands idly watching as the bad guys have a field day. The underlying problem is that both the financial industry and the criminals are approaching the same problem in completely different ways – with banks thinking vertically while the bad actors look at things horizontally.
Take an area as specific as onboarding an institutional client as a prime case in point. Unlike opening a normal consumer bank account, introducing an organisation into a bank can involve corporate structures so complicated it would take forever to untangle everything. From multiple beneficial owners and numerous jurisdictions, to a numerous opaque relationships between entities and money, these structures cover various different things.
Now, in all fairness, this is why banks have an army of consultants advising on what good financial controls should look like, tech firms building systems to solve esoteric problems, and service providers supplying the expertise to carry out KYC and proper due diligence. Each of these components, on their own, work well. But as banks try and find a way to piece all these various elements together, they risk leaving themselves with a load of vertical solutions to a horizontal problem.
The trouble is that from a criminal’s horizontal perspective, they do not care where one compliance function ends and another begins when they are trying to launder money. Instead, they are trying to find an answer to a much easier question of how does one move money through the financial system without being caught?
Before even beginning to answer this question, banks need to start thinking more like the criminals they are trying to catch. This means that instead of seeing KYC, payments, tax, ownership structures and individual transactions as separate problems, they need to look at the entire journey illicit money takes through the financial system. In other words, start with the criminal’s end goal and work backwards to identify where the weaknesses lie.
Right now, very few banks have connected the dots between all the systems and services they used to solve these problems and, subsequently, the vast majority are left with architecture that, while highly sophisticated, is also too fragmented to harbour hope of spotting a criminal’s intentions early. Sure, boom technologies like artificial intelligence provide an opportunity for a rethink. But even with AI, financial institutions risk asking the wrong question: if an institution needs 100 people to perform a process today, can AI allow 60 people to do it tomorrow? That may improve productivity, but it does not fundamentally change how we fight financial crime.
The more interesting point is whether AI can interrogate greater pools of data, connect information that previously sat in different places and uncover relationships that conventional processes struggle to identify. Used that way, AI is not simply another tool for doing the same job faster, it can help institutions pose a much more rigorous set of questions.
The cold hard reality is that, as things stand, there is no easy answer when it comes to trying to stamp out financial crime. Technology alone will not solve it, and neither will consultants or larger compliance teams. What may go some way to finding a solution is to bring technology, expertise and people together and point them at the same objective. Criminals already think about the financial system as a connected whole. Ultimately, if banks want to beat them, then they really need to start doing the same.
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