By Donald Fenton
As banks in Europe play catch-up adapting to new global banking rules (Banking and Nothingness: Europe’s dithering banks are losing ground to their decisive American rivals, The Economist, October 17, 2015) banks in America have embraced one company’s declared war on fraud, money laundering and terrorist financing led by a former RCMP commander in the battle against an estimated $300 billion annual loss to crime.
Penalties for failing to detect and report fraud are substantial and can run into the hundreds of millions of dollars and cripple a financial institution commented Bernard Beck, senior vice president and chief compliance officer at AscendantFX, a foreign exchange company with 2,500 bank clients.
Mr Beck, a former commander in the RCMP’s commercial crime unit, said the level of protection his company offers helps to manage both reputation and assets.
With 30 years of experience in legal and regulatory compliance overseeing financial propriety, he is responsible for ensuring that AscendantFX www.AscendantFX.com the company and its employees meet and exceed the industry’s legal and compliance requirements in every jurisdiction of operation.
Until his departure in December 2009 as SVP, Chief Compliance Officer at Custom House Ltd (Western Union Business Solutions) a high growth company that specialized in foreign exchange hedging and commercial payments, Beck directed a team of compliance professionals, business risk consultants and legal experts in the development and maintenance of processes and systems to manage business risk and for legal compliance globally.
Experience in Great Britain, EU, Asia Pacific and North America
By overcoming barriers to entry, he guided the company through stringent regulatory and financial services licensing requirements in Great Britain, Europe, Asia Pacific and North America. The compliance and risk programs contributed substantially to the success and growth of the company and its sale to Western Union for $370m.
Mr Beck says the forces against financial crime are formidable and offers this overview of financial crime legislation.
The Office of Foreign Assets Control (OFAC) of the US Department of the Treasury administers and enforces economic and trade sanctions based on US foreign policy and national security goals against targeted foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the United States.
OFAC acts under Presidential national emergency powers, as well as authority granted by specific legislation, to impose controls on transactions and freeze assets under US jurisdiction. Many of the sanctions are based on United Nations and other international mandates, are multilateral in scope, and involve close cooperation with allied governments.
The Financial Crimes Enforcement Network (FinCEN) is part of the United States Department of the Treasury. FinCEN’s mission is to safeguard the financial system from illicit use and combat money laundering and promote national security through the collection, analysis, and dissemination of financial intelligence and strategic use of financial authorities. FinCEN monitors depository institutions, money services businesses, securities and futures firms, insurance companies, casinos and card clubs and other types of financial institutions.
The Currency and Foreign Transactions Reporting Act of 1970 (the legislative framework is commonly referred to as the “Bank Secrecy Act” or “BSA”) requires U.S. financial institutions to assist U.S. government agencies to detect and prevent money laundering. Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instruments, file reports of cash transactions exceeding $10,000 (daily aggregate amount), and to report suspicious activity that might signify money laundering, tax evasion, or other criminal activities. It was passed by the Congress of the United States in 1970. The BSA is sometimes referred to as an “anti-money laundering” law (“AML”) or jointly as “BSA/AML.” Several AML acts, including provisions in Title III of the USA PATRIOT Act of 2001, have been enacted up to the present to amend the BSA.
Examples of massive fines
Mr Beck noted a few examples of massive fines.
Legal documents show that JP Morgan was fined $1.7 billion for failure to file suspicious-activity reports on transactions arising from the Bernie Madoff investment scheme. HSBC was fined $500-million for failing to detect and report money-laundering activity. And one small regional bank in West Virginia, with only $94 million in assets, had to pay a $4.5-million penalty for failure to detect suspicious activity involving $9.2 million.
While fines are expensive, Beck said, smaller banks often look at a complete security and compliance regime as too expensive. Ascendant FX has the ability when customers are trading on their systems and AFX is facilitating their foreign exchange or making payments around the world to track the activity and detect fraud, money laundering and terrorist funding.
A provider of worldwide payment solutions, AFX recently enhanced the security features available on its online payment platform, AFXOnline, by supporting security tokens for multi-factor authentication.
Security tokens are used to prove an individual’s identity electronically and multi-factor authentication provides the highest levels of security against fraud. Along with the employee’s user identification and password, clients now have the option to require their employees to insert their personal security token into their computer before being able to login to AFXOnline.
Authentication methodology that is easy to use
AscendantFX has developed an authentication methodology that is easy to use and has security functionality with a unique USB device offering one-touch, strong authentication that supports multiple authentication protocols for all devices and platforms and the multi-factor authentication can be activated on a per client basis.
The main benefits of AFX’s fraud detection and prevention features include no need for drivers or client software and middleware that employs native drivers and support built into the browser. There is no installation, no configuration and no certificate authority needed and open source reference software is available for integrations.
AFX’s solution is highly scalable while protecting the client’s privacy and generates a new set of encryption keys for every service. The keys are only stored on the specific service being accessed such that no secrets are shared among service providers and any number of services are supported.
Bank clients report a great user experience and like the fact that all it takes to register and authenticate is a simple touch of a button. Authentication can be owned and controlled by AFX clients who connect directly to a service provider without a third-party software or provider.
The enhanced international payment platform delivers compliance with trend-based transaction monitoring using risk analytics software.
Financial institutions are responsible for developing policies and procedures to combat money laundering and other financial crimes, including being aware of the methods by which these crimes are carried out. This is a difficult task as criminals continually adapt to new and changing regulatory protocols.
Failure to have an adequate compliance program increases operational, reputational and financial risks and can result in regulatory penalties, forced operational changes, lost revenue streams or frozen assets, and negative publicity.
AscendantFX has incorporated risk analytics software to enhance client compliance services and to add additional screening to help financial institution clients identify risks that may not be easily identifiable with their present tools.
AFX complements existing anti-money laundering and fraud prevention expertise and helps detect and prevent fraud, increasing the ability to identity unusual or suspicious activity in the customer base with flexibility and the highest levels of security and privacy.
The company supports front end OFAC validation and helps financial institutions with regulatory requirements by providing them with the tools needed to be compliant with the Bank Secrecy Act and Anti-Money Laundering global regulations.
Examples of financial crimes detected
Mr Beck summarized financial crimes that he has seen on his watch.
Money laundering transforms illegally obtained cash into legitimate funds. A worldwide problem, worth an estimated $300 billion annually in the United States. Criminals deposit funds in financial institutions or convert cash into negotiable instruments. The federal Bank Secrecy Act requires financial institutions to report deposits of more than $10,000 in cash made by an individual in a single day. To disguise this, launderers will route cash through a “front” operation, a business such as a check-cashing service or a jewelry store or convert the cash into negotiable instruments, such as cashier’s checks, money orders, or traveler’s checks.
Terrorist Financing or funds for terrorist activity is raised from legitimate sources, such as personal donations, profits from businesses and charitable organizations, and criminal sources, the drug trade, the smuggling of weapons and other goods, fraud, kidnapping, extortion and even the recent sale of archeological treasures. Terrorists use techniques like those of money launderers to evade authorities’ attention and to protect the identity of their sponsors and of the ultimate beneficiaries of the funds. However, financial transactions associated with terrorist financing tend to be in smaller amounts than is the case with money laundering, and when terrorists raise funds from legitimate sources, the detection and tracking of these funds becomes more difficult. To move their funds, terrorists use the formal banking system, informal value-transfer systems, Hawalas and Hundis and, the oldest method of asset-transfer, the physical transportation of cash, gold and other valuables through smuggling routes.
Fraud by beneficial owners refers to illegal gains made by the true owner of an entity, asset, or transaction as opposed to any stated ownership provided in documents or oral representations. The beneficial owner is the one that receives or has the right to receive proceeds or other advantages as a result of the ownership. It is common practice in offshore financial secrecy jurisdictions to interpose entities, individuals, or both as stated owners. The beneficial or true owner is contractually acknowledged in side agreements, statements or by other devises.
Phishing is when internet fraudsters impersonate a business to trick you into giving out your personal information, it’s called phishing. They use reply to email, text, or pop-up messages that ask for your personal or financial information. Here are three examples: (1) we suspect an unauthorized transaction on your account. To ensure that your account is not compromised, please click the link below and confirm your identity. (2) During our regular verification of accounts, we couldn’t verify your information. Please click here to update and verify your information, (3) our records indicate that your account was overcharged. You must call us within 7 days to receive your refund. Often you are asked to click on links within. Don’t – even if the message seems to be from an organization you trust. It isn’t. Legitimate businesses don’t ask you to send sensitive information through insecure channels.
Advanced fee schemes fraud gets its name from the fact that an investor is asked to pay a fee up front or in advance of receiving any proceeds, money, stock or warrants in order for the deal to go through. The fee may be in the form of a commission, regulatory fee or tax, or some other incidental expense. These secondary “advance fee” schemes work very similarly to boiler room operations, the difference being that an advance fee scheme generally targets investors who already purchased underperforming securities, perhaps through an affiliated boiler room, offering to arrange a lucrative sale of those securities, but first requiring the payment of an “advance fee.” Characteristic of some advance fee fraud solicitations and other fraudulent schemes to deceive and defraud unwary investors is the use of websites and e-mail addresses ending in “.us” or “.org” and containing “.gov” as part of the domain address.
AFXOnline has always OFAC scanned its transactions, but by giving financial institutions the value added ability of OFAC scanning on one system, simplifies the process, lowers processing costs and increases the value of compliance reports.
To build market share, financial institutions must balance attracting new clients with comprehensive BSA/AML compliance. Losing clients to the competition because they are not offering a complete range of products can seriously affect the bottom line of any financial institution. AscendantFX helps financial institutions build fences around their clients and keep their full wallet share.
AFXOnline offers regulatory compliance features that include mitigation of risk exposure with enhanced due diligence data, the ability to generate compliance reports on all transactions including case management reporting.
The system controls regulatory costs, supports critical compliance requirements and delivers fast screening with access to the most robust global watch lists enabling banks to fight money laundering and terrorism financing while protecting their reputation and bottom line.
Q&A with Clare George-Hilley, co-founder, Centropy PR
Clare George-Hilley is the co-founder of Centropy PR
Global Banking and Finance Magazine recently caught up with Clare George-Hilley, co-founder of fintech and financial services specialist PR agency Centropy, as the company toasts to three years of trading. We asked Clare about what life is like running an agency in the city, the trends she is seeing in the financial services space and what the future holds following the Covid-19 outbreak.
Why did you decide to set up Centropy PR?
I was looking for an opportunity to launch my own agency, both my husband and I had been in the public affairs and public relations industry for over a decade and we thought the time was right to go out on our own.
We could see that the financial services industry was surging, with challenger brands and new technology transforming traditional banks and setting new standards of customer service. There was a huge market opportunity to create and launch a PR agency that could provider first class comms support, alongside a deep understanding of complex regulations such as AML, KYC, and the GDPR. Likewise, many traditional technology firms are diversifying their offerings, to tap into the growing market opportunity posed by the fintech boom.
So, we worked on a business plan, designed a strategy for winning clients and officially launched in September 2017. Within a few months we had a growing portfolio of clients and a thriving business, since that point, we have never looked back!
How is Centropy doing now and what are you plans for growth?
The last three years have flown by and our client portfolio has grown and diversified quickly. We now manage PR campaigns for clients on everything from cryptocurrency, wealth management to payments and trading software.
We’ve also hosted parliamentary debates with key industry figures, including Members of Parliament (MPs) on topics such as the future of the financial services industry and the impact of challenger banks on traditional providers. The team is expanding quickly and we’re investing heavily in the latest training and support to ensure our team members are equipped to reach their full potential.
How do you see the next 12 months?
The Covid-19 outbreak has crippled the economy, forcing millions of people to work from home due to the very serious health risks. The knock-on effect of this crisis will lead to companies cutting costs where possible to save jobs, so tech will play a vital role in ensuring many businesses stay afloat.
We are already working with contactless payments specialists and other fintech companies that offer solutions to help companies survive and thrive despite the inevitable challenges ahead.
We aim to continue building our portfolio of expertise, testing ourselves with new challenges and delivering the best possible service to clients
This is a Sponsored Feature.
Lessons from past recessions and advice for business owners during the coronavirus pandemic
By Neil Davis, managing director and co-founder of Sterling Networks
What is Sterling Networks?
“Sterling Networks is a professional organisation founded in 2014 which facilitates networking events for businesses across the Midlands, Oxfordshire, Wiltshire and the South West. Over 300 members attend our fortnightly breakfast and lunchtime meetings.”
What is your background prior to establishing Sterling Networks?
“During the 1990s, I worked in the corporate team for Halifax. My wife, Tracey, and I went onto own a manufacturing business, which was also called Sterling, and produced a range of gifts, merchandise and promotional items.
“We soon realised tradeshows were a great way to meet distributors and clients. From there, the business grew exponentially, and we managed to build a network of around 500 distributors. Eventually, we became ground down by the manufacturing business – in part because the local manufacturing sector was being devastated by competition from China – and took the decision to sell the business and relocate to Spain.
“After spending several years living abroad, we moved back to the UK to set up Sterling Integrity (EXPO’S) & Sterling Networks (Networking) We were inspired by a desire to help businesses make meaningful connections with one another, and we haven’t looked back since.”
The UK has recently entered a recession, brought about by the coronavirus pandemic. What have you learned from past recessions and how are these experiences helping you to navigate the current crisis?
“I’ve lived through a number of recessions and have seen the pain that insolvency causes companies on a large scale. It’s taught me that there are those who win and sadly those who lose, and that businesses must adapt to a rise in demand for certain products or services at a time of financial crisis.
“Given the nature of what Sterling Networks offers [an opportunity for business owners to connect and grow together] I decided we could build upon the brand due to the demand for new business during the pandemic. We therefore moved our networking events from face-to-face to virtual via tools like Zoom and have gained a steady stream of new members in recent months, reaching an overall total of well over 300.
“On top of that, we’ve taken new staff on during the crisis and have launched a number of new regional groups across the country. I was determined that Sterling should come out of the pandemic with a head start, so my attitude to the recession has been much more positive than those who are forecasting nothing but doom and gloom.
“We can’t pretend high street retail wasn’t suffering long before the pandemic came along, and thousands of new businesses are sure to start up to meet the demand for the products and services that people require at a time such as this. In order to develop and grow businesses need to focus on where changes need to be made to meet this demand.”
Sterling Networks has been providing emotional support to its members throughout the pandemic. What advice have you been giving to members that could be useful to other business owners?
“I try not to be too opinionated and respect other people’s views when giving advice to members, as there are always two sides to every circumstance. I’ve been careful not to say to people that they should be doing one thing or another, as I don’t know their business and its needs quite like they do. The only thing that I have been telling members is the importance of setting up one-to-ones with one another. By doing so, they can listen to the needs and concerns of other, like-minded business owners and work out ways that they might be able to help one another.
“The pandemic has meant we all have a bit more time on our hands, so the advice I would give to people is to use this extra time wisely. Not having to travel physically from one meeting to another means there is a greater opportunity to connect with more people. It’s important to remember that individuals outside of your business can be just as valuable as those within it.”
What makes you hopeful for the future and are there any words of encouragement you can give to budding entrepreneurs?
“The key events that have happened to this country during my lifetime – whether wars, recessions, or the pandemic – have enabled me to take stock of things. While these experiences are certainly challenging, we all become stronger for living through them, and it gives me great confidence that the world will ultimately improve as a result of the pandemic.
“The whole world is effectively rebooting right now, as is the business community. I like to think entrepreneurs will recognise this opportunity to take better care of their peers, and this translates to greater collaboration between organisations. Speak to as many people as you can, ask all the questions that you need to and do your homework. This might well be a difficult time for us all but planning for the future must start now if it is to become as prosperous as I know it can be.”
Exclusive Interview with Ugo Loser, CEO of ARCA Fondi SGR
Arca Fondi SGR is a mid-sized Italian active asset management company. Founded in 1983 by a consortium made up of 12 regional banks, the company has grown in time, expanding its network of distributors and its client base. Nowadays Arca manages Mutual Funds, Pension Funds and Institutional Accounts with total AUM exceeding 30 € bln, reaching more than 100 banks and financial institutions and serving more than 800,000 final clients.
What are the key contributors to ARCA Fondi SGR’s success over the past 35 years?
Arca has always put clients and distributors first. That is to say we have always privileged fair pricing for funds and developing high quality products and services for our customers. This requires constant innovation as an objective and looking for people’s talent to be free to produce its effect
Why are people the founding element of ARCA Fondi SGR and how have you sustained this vision over the years?
We work in small teams, people are young and motivated and can perform duties with a high level of autonomy and responsibility. Innovation is asked to everyone, everyday
What makes Arca Fondi SGR different from other asset management firms in Italy?
Arca is a company focused on doing what it can do very well, that is to say mutual and pension funds, services for clients and banks. We never follow short term trends but always look for long lasting impact on the industry, like we’ve done may times in the past
What products/services has ARCA Fondi SGR pioneered?
Arca has been the inventor of “Arca Cedola”, fixed-horizon, coupon paying funds, which have been with no doubt the greatest product innovation of the past 12 years on the Italian market. This type of funds, at first strictly based on bonds and later as a balanced product, has encountered an enormous success both with clients and distributors due to its simple and effective value proposition. Arca is a market leader also in the “PIR” segment of funds, a range of product focused on mid and small sized companies, that have been the best performers in the Italian stock market for the last few years. In services, Arca is a leader in technology applied to asset management. Our website, app and digital services for clients and banks are award winning, state of the art combination of data, technology and channels, and the best is yet to come on this side.
What strategies do you have in place to sustain your market position and withstand professional competition in the country?
As I mentioned, we do not waste resources on projects with dubious results, instead we constantly invest on people, products and services. The high level of profitability that Arca has been able to maintain even in difficult years for the markets of the banking sector is a further testimony that this strategy works very well
How do you use technology to create meaningful experiences for your customers?
First of all, we have created a whole new division, Arca InnovAction Lab, dedicated to technology, data and processes. This ensures projects are delivered quickly and they are free to leave bad past practices behind. Arcaonline.it, Arca’s website, provides distributors with detailed information on clients’ portfolios, asset under management and subscription/redemption requests. It monitors aggregate selling data offering to our partners a suite functions and analytics to track commercial campaigns. And if the banks branches need assistance, they may ask Sara, our digital chatbot. A broad and timely multimedia production, covering exclusive reports, comments, presentations, videos, webinars and newsletters is also available on the website.
Customers, subscribing Arca’s funds through its distributors’ network, may access Arcaclick, a dedicated area on Arcaonline.it. With Arcaclick the client can easily browse through her portfolio of funds, analyze its characteristics, view transactions and historical funds’ performance in customizable views. Arcaclick is also a powerful source of information on Arca product range: Prospectus, KIIDs and other literature is easily accessible along with news, comments and reports. Arcaclick may also be accessed via Arca Fondi App, a free application for mobiles and tables, running on both iOS and Android. Available 24/7 and in mobility, Arcaclick gives clients the opportunity access information, news and details of their personal portfolio anytime and anywhere.
What key trends will drive pension growth in 2020 and beyond?
The Italian market for pension funds is still very small and therefore there is a great opportunity to grow. Arca Fondi manages the biggest open ended Italian pension fund and it’s been constantly at the top of its rankings. As people and workers are looking for yield and to weather short term volatility, the pension fund is very well poised to profit from this trend.
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