The incendiary leaks from the US Treasury’s Financial Crimes Enforcement Network (FinCEN) last month have thrown a harsh spotlight on the banking sector.
The scale of the misdemeanours uncovered, and the publicity they have attracted, means there is bound to be a regulatory response – not least because regulators themselves are attracting scrutiny over their apparent failure to act sooner.
The focus at the moment is on the bigger banks but the response, when it comes, will have an impact across the board, and financial institutions of all shapes and sizes are likely to be affected.
The political sweeping-up process started almost immediately with the chair of the House of Commons’ Treasury Select Committee, Mel Stride, writing to the heads of the FCA and HMRC demanding urgent answers, and calling into question whether they were up to the job of anti-money-laundering (AML) regulation and supervision.
It is only a matter of time before regulatory heads are threatened with being put on spikes unless they get their house in order. Ministers, too, will want to be seen to act decisively.
The result is likely to be a further tightening of the Money Laundering Regulations (MLRs), coupled with a display of feathers from the regulators to demonstrate that they are using their powers effectively to combat the growing threat of money-laundering.
It is worth stressing that the majority of financial institutions are blameless in all of this and go out of their way to meet the demands of compliance with the MLRs. It may seem unfair that those who have been playing by the rules all along will get caught up in this regulatory backlash.
Reason to go digital
While the regulations may get tougher, however, there is no reason why compliance has to be harder. By moving to a fully digital solution, firms can effectively automate away around 95% of cases in a matter of seconds, leaving compliance resource free to focus on the remaining 5% where suspicious activity is likely to be concentrated.
At SmartSearch, we work with a wide range of lenders, and others covered by the MLRs such as law firms, accountants and estate agents, and their near-unanimous view – as shown by our 98% client retention rate – is that they have no wish to go back to outdated manual Know Your Customer (KYC) processes.
With the reintroduction of coronavirus restrictions – and every likelihood that these, too, will get tougher over the winter months – it is clearly more important than ever that customer onboarding can be carried out remotely.
Advances in technology
Electronic identity verification ticks this box: all that is needed is a name, address and date of birth to perform a full digital AML check.
This includes screening against global Sanctions and Politically Exposed Persons (PEP) lists – clearly highly relevant in the wake of the FinCEN leaks and the earlier revelations from the so-called ‘Russia Report’. And our system also delivers ongoing monitoring as standard, so that any change in a customer’s status is immediately notified.
With advances in technology, this can now be supplemented with biometric facial recognition, and a range of digital fraud checks. When all these measures are combined, they form an almost impenetrable layer of security that will withstand even the toughest of regulatory scrutiny.
John Dobson is chief executive of SmartSearch
