Karim Rajwani, Global AML Advisor, Quantexa
When we hear about money laundering, we tend to think of shell companies, offshore accounts and complicated corporate structures. The reality is that money can be laundered in many different ways and, as we become increasingly digitised as a society, technologies continue to emerge that are being capitalised on by criminals looking to clean up the profits of their crimes.
Over the past decade, the finance industry has seen a wave of competition flood the market whose historically monopolistic nature had allowed it to become riddled with inefficiencies.
Recent disruptors to the market have provided alternative methods of banking, saving, investing and spending and have changed the landscape for consumers. But, all these new technologies have provided new opportunity for laundering money too.
Earlier this year, digital challenger bank Revolut reported that it had suspected money laundering amongst some of its account holders and had reported it to the relevant bodies. The difference between these new companies and big established financial institutions, is that the former are growing so fast that questions arise over whether they have the capacity to stay compliant when they are onboarding customers much quicker than they can onboard staff.
Running efficient Anti-Money Laundering (AML) processes can be difficult even for the biggest banks. Current technologies in place to monitor for suspicious activity, known as Transaction Monitoring Systems, are extremely inefficient. Quite often, they were hastily built based on retail banking systems and are therefore not entirely fit for purpose. The main problem with these systems is that they often alert investigators to incidents that tend to be false positives, at rates close to only 0.1 in every 100 alerts being worth actual investigation.
The problem is further exacerbated by the fact that employees who monitor and investigate these alerts are inclined to file defensively. Cases of historic money-laundering continue to emerge continuously and in each circumstance there are individuals whose personal reputation and career is lost because they were at fault at some point during the process. The risk of personal liability is enormous for these individuals which, of course, encourages them to err on the side of caution when it comes to assessing the viability of every Suspicious Activity Report (SAR.) Defensive filing slows the process down even more and leads to even slower rates of efficiency.
If well-established banks who have been running AML monitoring systems for decades find the process difficult and time-consuming, it’s easy to see why challenger banks with rapidly growing customer bases and strained AML systems might be a target for criminals. Historically, criminals have regularly directed the flow of illicit funds towards institutions they know to have weaker AML systems, or ones where they have tested the parameters of its transaction monitoring system and can avoid raising any red flags. Their targeting of new technologies appears to an extension of the same logic.
However, the financial sector is not the only one that has been disrupted by new technological competitors. Airbnb, for example, is a tech company who has challenged that way that the hotel sector operates as an outsider, but whose services have also been abused by criminals looking to clean up their money. At the end of 2017, it was alleged that the home-rental platform was being used in Russia to turn the profits of crime into ostensible legitimate funds. Essentially, one party would set up an Airbnb account and a colluding party would book it through the app, sending funds to the first party without ever having actually stayed in the accommodation. The idea being that that the process gives the transfer of funds between the two parties a legitimacy that it would not have otherwise had. Other emergent technologies have also been targeted this way, such as taxi-hailing app, Uber. Similarly, colluding parties would request and log rides that didn’t actually happen as a means of transferring funds between themselves.
The cases of both Airbnb and Uber evidence the fact that people looking to launder money are thinking quickly and creatively about the options that new technologies are affording them. In the case of Revolut, their status as a financial institution puts them under greater scrutiny in terms of compliance, but the responsibilities of companies like Airbnb and Uber are not as clearly distinguished. The past decade has shown time and time again that money-laundering is a severe problem, not only in the corruptions it involves but some of the atrocities that it has funded. In order for this problem to be eradicated, companies in all sectors and involving all types of financial exchange need to be looking at their internal processes to see what else they can do to ensure that their services are not being abused in this way.
Financial transformation is the new digital transformation
By Luke Fossett, ANZ Head of Sales for global recurring payments platform, GoCardless
The term ‘digital transformation’ has become somewhat synonymous with COVID-19. As teams and operations became decentralised, companies looked to quickly build their remote tech stacks, striving for ‘business as usual’ despite the circumstances.
But in the background of COVID’s chaos, different regions and industries experienced major changes, sparking a different breed of transformation beyond the digital spectrum.
Take Australia as an example. In July, the market saw the local arrival of Open Banking, as well as further detail into the regulated and planned transition away from the existing Direct Debit system to the central-backed New Payments Platform (NPP) and it’s Mandated Payment Service. With these changes comes the impetus for a wave of ‘financial transformation’; a term that describes the process of making financial operations, processes and outputs more efficient.
Despite its potential for broad interpretation, financial transformation has the potential to produce use-cases that drive value for the customer; from things like seamless payment experiences, to data-rich APIs and integrations, to managing real-time bank to bank payment and the automation of everything from customer acquisition to using data to retry a failed transaction on the date that gets the best success. These innovations are well within reach for enterprise organisations, however, to extract real value, business leaders need to plan their financial infrastructure in parallel with making digital investments.
With the right deployments, financial transformation can reap significant rewards from a customer and internal operations perspective – so here’s why business leaders should be paying attention:
Value speaks volumes to the C-suite
Financial transformation benefits enterprise organisations as well as small and medium-sized businesses (SMEs) that need to create efficiencies as they scale, but translating its value is not always easy.
Payments are a complex part of any business, impacting many different consumer-facing and internal functions. Yet the role of ‘payments specialist’ is a rarity in most organisations.
Responsibility for financial transformation often falls – and gets lost – somewhere between the Chiefs of Technology, Information and Finance. That’s why leaning on platform providers and payments experts as early as possible, is key to understanding your customers and capabilities, before you implement and invest.
Outsourcing financial transformation initiatives is a much easier sell to enterprise decision-makers than redirecting IT resources to new DevOps projects. Credible payment providers, and the specialised knowledge that comes with good ones, are in most cases a more cost-effective solution than employing a full-time expert. Translating the value of financial transformation to achieve buy-in from the C-level boils down to maximising efficiency and return on investment (ROI).
A simple solution is using automation for tasks like streamlining processes, such as collecting payments on time without human contact. Find the sweet spot between how you want your customers to pay, and how they prefer to pay; then offer those options, while making sure they can be done with little to no touch internally.
‘Best-in-class’ platform providers typically describe innovative fintech companies, who, as opposed to generalist banks, are deemed specialists in niche elements of financial services.
Again, using the example of Australasia, there are nearly 5,000 active fintechs, and it’s a market that legacy-laden big banks are tapping into. For example, Australia’s largest bank, the Commonwealth Bank of Australia, recently partnered with venture capital firm Square Peg, and AI-focused capital fund Zetta Ventures Partner; pouring $AUD28 million into new financial technology that delivers better digital banking services to its customers.
Fintech-led transformation doesn’t only have to benefit the customer; it can offer significant value for financial teams too.
In an enterprise environment, choosing the right technology allows for slick front end payments, but the true value comes in optimising financial management behind the scenes.
Take the rising consumer demand for subscription services as a use-case. According to Zuora’s Subscription Impact Report, 50 per cent of all subscription companies are growing just as fast as they were before the pandemic, while 18 per cent are actually seeing subscriber growth rates accelerate. With this trend comes a rise in companies looking to invest in recurring billing platforms that make it easy to accept regular payments, however, finding a low-touch platform that offers the financial infrastructure to support subscription-based payments will generate much greater ROI. There is no point blowing budgets on a ‘rip and replace’ billing platform if internally, finance teams still have to revert to a manual process of uploading payment files in a spreadsheet.
The future is financially transformed
The Reserve Bank of Australia’s latest Consumer Payment Behaviour survey shows that in 2007, cash was used for 69 per cent of all transactions, while last year it accounted for just 27 per cent. Additionally, over 50 per cent of Australian businesses prefer bank-to-bank payments, known as Direct Debit, over credit cards as a way to collect payments.
Payment preferences are rapidly evolving, and keeping up with consumer payment trends is key to staying competitive. To be effective, however, you need to have the infrastructure to support and accept diverse payment methods.
‘Payments as a Service’ (PaaS) is a phrase used to describe platform providers that connect multiple payment systems, enabling companies to offer several payment options while replacing outdated practices like paper-based Direct Debit.
In 2020, the most successful enterprises are utilising PaaS providers, built for self-serve and high rates of conversion. Take Bulb, for example; the UK-based energy company allows users to sign-up, switch energy providers and lock-in their payment preferences, all in under two minutes. Better yet, the process requires almost no people management.
Taking a visionary lens on financial transformation means building greater payment efficiencies for both the customer and the enterprise. Additionally, the specialist and agile nature of fintech platforms puts the organisations who use them on the cutting-edge of innovation, future-proofing operations in a fast-moving market without significant investments in research and development.
Best-in-class platform providers are driving financial transformation change; helping business navigate and plan so they are prepared for today, and for what’s coming.
RegTech 2020: Exploring financial crime and the emergence of RegTech in the USA
with host, Alex Ford, VP Product and Marketing, Encompass, and guests, Dr Henry Balani, Head of Delivery, Encompass; Pawneet Abramowski, Chief Compliance Officer
Today, financial institutions deal with increasingly complex transactions and regulations that are continually changing. For the financial services industry, the cost of regulatory obligations has dramatically increased in recent years and, as a result, there has been a strong demand for more efficient reporting and compliance systems to better control risks and reduce compliance costs.
The complexity of regulation has made it more difficult for compliance and legal teams to manage risk. Also, the rise in large monetary fines, the impact of reputational damage, personal liability and even prison sentences have all played a factor. However, it remains essential that RegTech and AI is not seen as the only answer to addressing all financial crime risk, but rather a tool that, if used properly, can create more efficiency in the management of money laundering, bribery, corruption and fraud.
This month’s insightful and thought-provoking RegTech 20:20 podcast, from Encompass Corporation, delves into these topics from a US perspective, as guests, Dr Henry Balani, Head of Delivery, Encompass, and Pawneet Abramowski, Chief Compliance Officer. Pawneet has more than 17 years of combined experience in both public and private sectors with a focus on compliance and Henry has experience supporting innovative technology solutions that address issues of financial crime and money laundering. He advises technology firms as a Non-Executive/Board Director.
Encompass Corporation aims to demystify RegTech for listeners and understand what practitioners and experts are doing to overcome organisational challenges. This time,
Pawneet discusses how the US is at the forefront of the utilisation of technology, while also reflecting on the long history of money laundering and financial crime there, saying that “the birth of RegTech in the last 5-7 years has been really prominent in the United States”.
Henry, having had more than 25 years’ of financial services industry experience, speaks about how so many transactions worldwide are cleared in a US bank and how the US dollar is a powerful weapon, especially when money laundering comes into play.
When asked about her thoughts on technology assistance, Pawneet suggests that organisations are having to continuously evolve their programme and controls, telling the audience: “I think that’s where this desire for having technology assist in making things more efficient and operationally effective”.
Henry gives listeners an insight into regulatory penalties being a driver in changing behaviour, suggesting that this type of enforcement is a successful method.
“…as we see the increasing use of these penalties, organisations are noticing the reputational damage as embarrassing. We have seen a lot of these companies coming to RegTech firms asking for solutions to help them identify these potential challenges and issues”
Later on in the podcast, he goes on to speak about the challenges for regulated banks in the US. Breaking down the latest data and survey figures, Henry insists that the US has huge workforces in this organisation of growth. “To be a compliance professional, you are certainly in huge demand.”
Technology advancement is increasing at a rapid rate in the US. Regulated firms have a challenge not only to stay ahead of criminals, but there is often a rush to introduce new technology and continue to improve the experience of customers. Regulated bodies in the US, especially banks, have long been reinventing and adapting their compliance programmes to meet both their legal and community obligations and, as Pawneet explains, “it feels like a constant regulatory revolving door as a compliance professional”.
More expert commentary, RegTech conversation and industry insight can be found in the full episode of RegTech 20:20. You can listen here https://www.encompasscorporation.com/regtech2020-podcast/, and across all major podcast players
86% of UK businesses face barriers developing digital skills in procurement
A shortage of digitally savvy talent, and a lack of training for technical and soft skills, hinder digital procurement initiative
Research from Ivalua, a leading provider of global spend management cloud solutions, has shown that a majority of UK businesses (86%) face significant barriers developing digital skills in procurement. The findings reveal that a shortage of digitally savvy talent (31%), a lack of training for technical and soft skills (28%) and a lack of understanding of the skills required (13%), are some of the main barriers preventing UK business from developing the digital skills they need. Additionally, over half (55%) of UK businesses say that digital skills in procurement are less advanced compared to other departments
The research, conducted by Vanson Bourne on behalf of Ivalua, surveyed 200 UK-based procurement, supply chain and finance professionals about the true nature of digital skills within procurement, and the challenges businesses looking to digitally transform will face. More than eight-in-ten (84%) UK businesses believe that the skill set required of procurement professionals has shifted from procurement-first to digital-first. The study also highlighted that most respondents believe that greater digitalisation (84%) and better digital skills (83%) in procurement would have enabled UK businesses to mitigate the impact of the COVID-19 outbreak more effectively.
“Over the last decade, the role of procurement has transformed from one of cost-cutter to a vital ally that can help inform and enable a business’s strategy. The global COVID-19 pandemic accelerated this trend even further, reinforcing the importance of procurement as businesses adapt to the new normal,” commented Alex Saric, smart procurement expert at Ivalua. “However, for too long, procurement has been seen as a digital laggard, with technology adoption trailing behind other departments. In order to keep its seat at the table in strategic discussions, procurement must ensure it has people with the right skills in-house, as well as easy to use technologies, or risk being unable to offer significant strategic value.”
Challenges in hiring digital skills in procurement
As part of ongoing digital transformation efforts in procurement, the report found that UK businesses have started to introduce new technologies such as data analytics (55%), cloud-based platforms (53%), automation (35%) and AI/machine learning (30%) in the last 12 months.
But when it comes to deploying these technologies, UK businesses are finding it difficult to complement them with the digital skills required. The study found that 88% find it challenging to hire the right digital skills to work with technologies such as AI, cloud-based platforms or data analytics, while 76% say they are concerned that existing procurement teams will struggle to work with new technologies. Developing digital skills is vital for businesses, as 91% of respondents say that improving digital skills can make procurement more strategic, while 94% say it will help them gain a competitive advantage.
“In a rapidly evolving business environment, digital skills are essential for procurement teams to analyse and mitigate risk, identify new opportunities and collaborate with suppliers. However, procurement teams are struggling to both attract digital talent and upskill existing teams, which puts them at risk of falling behind competitors, losing market share, and struggling to identify risk and opportunities ahead of time,” comments Saric.
“To address the digital skills gap in procurement, UK businesses need to ensure they are focusing on adopting tools that are easy to use and improve access to actionable insights. By making procurement smarter, businesses are giving teams the tools and skills needed to thrive in the new normal, allowing the business to react and proactively address the shifting sands of a post-COVID world.”
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