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The Role of the G-20 in Sustaining the Recovery and Protecting Financial Stability




Remarks – Tiff Macklem
Senior Deputy Governor of the Bank of Canada
Presented to: Federation of Indian Chambers of Commerce and Industry (FICCI) and Indian Banks’ Association (IBA)
Mumbai, India

In some respects, Canada and India could not be more different. Canada is the world’s second-largest country in geographic size, with a population of 34 million. India, as one of only two countries with more than a billion people, is the world’s second largest in population and is expected to be the largest within 15 years. However, there is much we share, not least, vast and diverse geographies, diversity among our citizens, a common democratic heritage as members of the British Commonwealth, and market-based economies.
In my remarks today, I will focus on these and other similarities between India and Canada, as well as our strong, joint interest—indeed, our leadership role—in the G-20 reform program to achieve durable financial stability and sustainable and balanced economic growth.
My message, in a sentence, is that while the G-20 has made considerable progress in strengthening the microeconomic rules governing the regulated financial system, we have fallen short in correcting the imbalances that are plaguing the global economy and fuelling financial vulnerabilities. And this is having consequences. The slow progress by some countries in implementing adjustments needed to address macroeconomic imbalances is holding back the global recovery and increasing the risk of financial instability.
Canada and India are caught in the crosshairs. What can we do?
Individually, we can ensure our own macroeconomic policies—monetary, fiscal and exchange rate—are sound and supporting necessary adjustments. We can advance the implementation of higher global regulatory standards in our own financial systems. And we can ensure rigorous regulatory supervision of our financial sectors.
Together, Canada and India can provide a strong voice encouraging G-20 countries to accelerate their efforts to develop and implement concrete, measurable plans to reduce macroeconomic imbalances, address financial vulnerabilities and support a sustainable expansion.
Canada and India Weathered the Financial Crisis Better Than Most
Worldwide, the cost of the financial crisis that broke out in 2007 and escalated dramatically in the fall of 2008 has been enormous. The ensuing recession was the worst the world had seen since the 1930s and the most globally synchronized in history. Almost 28 million jobs were lost globally. Economic output in the major advanced countries, as represented by the G-7, fell by 5 per cent from peak to trough. For emerging-market countries, a collapse in trade led to a marked growth slowdown.
And today, four years from the start of the crisis and two years into the recovery, we are still not out of the woods. The European sovereign crisis has intensified, the U.S. credit rating has been downgraded, and a broad range of data has come in weaker than expected. All have led to an abrupt loss of risk appetite in financial markets. The implication is somewhat weaker economic momentum globally together with elevated risks.
Both Canada and India weathered the financial crisis better than most, and remain well-positioned to absorb aftershocks. To an important degree, this reflects the guidance we took from our own past mistakes. A central lesson we both learned is that adjustment deferred is inevitably adjustment magnified and intensified. And in response to this bitter experience, we put in place sound economic frameworks that have increased the resilience of our economies.
In the early 1990s, Canada and India both experienced serious economic crises and deep recessions. These crises produced similar epiphanies, which galvanized the political will necessary to make substantive policy reforms: in particular, to liberalize trade; to strengthen monetary, fiscal and financial policy frameworks; and to undertake needed structural reforms.
In Canada, a series of factors coalesced, including the lack of a credible nominal anchor for monetary policy, inefficient production, large and chronic fiscal deficits, and structural rigidities in labour markets. The resulting crisis led to key reforms. These included a free trade agreement with the United States and Mexico, an inflation-targeting framework for monetary policy, and a major fiscal consolidation that reduced the federal deficit from almost 6 per cent of GDP in 1992–93 to near zero five years later. Our employment insurance and public pension plans were also reformed as were regulations governing the financial sector.
The initial impact of each of these separate reforms was modest, but the benefits quickly cumulated and reinforced each other to become very substantial: low and stable inflation, declining government debt, stronger and more stable output growth, lower unemployment and financial stability.
I won’t presume to lecture on the history of the reforms instituted here in India, but I would suggest the world needs to hear more about India’s success story. The impact of the changes put in place is both impressive and instructive. As the Indian economy became more open to the rest of the world and its economy more market-oriented, economic growth doubled, rising from about 4 per cent in the early 1990s to more than 8 per cent by the end of the decade and this trend of strong growth performance has continued since the turn of the century. India’s exports of goods and services, as a share of GDP, more than tripled, rising from 7 per cent in 1990 to 22 per cent in 2010. But the most remarkable measure of success was that from 1994 to 2005, almost 29 million people—or close to the entire population of Canada—were lifted out of poverty.
The reforms adopted by Canada and India left our economies better able to adjust to the financial crisis and ensuing recession. This was a crisis that did not ignite within our borders. Yet our sound policy frameworks, combined with diligent implementation, have fortified our countries against the international shock waves and afforded us greater policy flexibility to respond to adverse real and financial spillovers.
Canada, India and the G-20
So it should perhaps not be a surprise that as the G-20 emerged as the premier forum for economic co-operation, Canada and India were approached to take on a leadership role in forging a global consensus around needed policy reforms. In particular, our countries were asked to co-chair two critically important G-20 working groups.
First, the G-20 Working Group on Enhancing Sound Regulation and Strengthening Transparency was established in the lead-up to the London Summit to tackle weaknesses in the financial system that had been laid bare by the crisis. In a remarkably short period of time, our working group was able to achieve agreement among G-20 members on the broad directions of financial sector policy reform. The recommendations in our report were adopted by G-20 leaders at the London Summit and set in train an ambitious financial reform agenda.1 I will come back to this in a moment.
Second, the G-20 Working Group on the Framework for Strong, Sustainable and Balanced Growth, which is ongoing, was launched following the Pittsburgh Summit to build a consensus around the policies required across the G-20 to sustain the recovery and ensure that policy frameworks and actions are consistent domestically and globally.
Let me say a few words about both projects—what has been achieved and what remains to be accomplished.
Financial Sector Reform
The financial crisis revealed all too starkly that liquidity buffers were glaringly inadequate, and that the global banking system as a whole was dangerously undercapitalized and overleveraged. To redress this core vulnerability, new global standards in the form of Basel III have been agreed. They substantially increase the loss-bearing capital that financial institutions must hold and establish new liquidity standards and a limit on leverage. These new standards represent a significant strengthening of the global rules. The combination of greater emphasis on true loss-bearing capital—namely, tangible common equity—and increased minimum capital levels has effectively raised the minimum global capital requirement seven times. Moreover, for the largest and most interconnected global banks, these requirements are being supplemented with additional loss-absorbing capital. These are major accomplishments.
The new rules must now be assiduously implemented in every institution. All jurisdictions must ensure strong supervision and oversight. Scrupulous international assessment must ensure equivalent implementation of these new higher standards.
Furthermore, we must agree on and implement a perimeter of regulation and oversight that encompasses all systemically important financial institutions, markets and instruments. And a new system of firewalls needs to be built to prevent the failure of one counterparty in the over-the-counter derivatives market from creating systemically perilous knock-on effects.
In short, much has been achieved and much remains to be accomplished. It is critically important that the momentum driving financial sector reform be maintained.
G-20 Framework for Strong, Sustainable and Balanced Growth
Progress on the Framework for Strong, Sustainable and Balanced Growth has lagged that of financial sector reform—and needs to accelerate.
The G-20 leaders launched the Framework in 2009, just as the global economy began recovering. Their goal was to safeguard the nascent recovery and achieve stronger global growth over the medium to long term. Leaders recognized the importance of beginning in the early stages of the recovery to put in place policies that would foster the adjustments needed to sustain recovery, prevent a re-emergence of global imbalances and support financial stability.
At the Toronto G-20 Summit in 2010, agreement was reached on a comprehensive, three-pillared policy package to support stronger, more sustainable and more balanced growth. It included:
•    fiscal consolidation in advanced countries that is credible and clearly communicated;
•    for emerging markets, strengthened social safety nets, infrastructure spending and, for some, increased exchange rate flexibility; and,
•    for the entire G-20 membership, the pursuit of structural reforms to increase and sustain our growth prospects.
Advanced countries made their commitment to fiscal consolidation more concrete by agreeing to at least halve their fiscal deficits by 2013 and stabilize or reduce government debt-to-GDP ratios by 2016.
Six months later, in Seoul, G-20 leaders called for indicative guidelines to identify large and persistent macroeconomic imbalances and for corrective policy actions to address the underlying root causes.
But actions have not always kept pace with commitments.
In advanced countries, the difficult task of legislating credible, well-defined fiscal consolidation plans is under way, but in some of these countries, current plans have yet to gain the full confidence of markets. Moreover, the consequences of inadequate progress have become more immediate. Sovereign debt concerns have contributed to a retrenchment in risk taking in global markets, sending the prices of safe-haven assets to record highs and pushing those of risky assets sharply lower.
In emerging markets, the pace of foreign exchange reserve accumulation has not slowed; on the contrary, it has accelerated. In 2010, aggregate reserves of G-20 emerging-market economies reached nearly US$5 trillion, or 32 per cent of their GDP. At US$3.2 trillion, China’s reserves alone have increased by almost a third since January 2010. This is also having more visible consequences.
The slow pace of exchange rate adjustment between the United States and China is holding back the recovery in the former and fuelling inflation in the latter. With only very modest adjustments of the renminbi against the U.S. dollar, China’s real effective exchange rate against its full range of trading partners has actually depreciated since June 2010. Moreover, as the consequences of this lack of adjustment spill over onto others, G-20 members are increasingly taking individual actions that collectively risk further thwarting needed global adjustment. The number of G-20 countries that are intervening against exchange rate movements has increased. And more emerging markets are taking measures to reduce capital inflows. As a result, countries representing more than 50 per cent of the U.S.-dollar trade weight are actively thwarting foreign exchange adjustment, either through quasi-fixed exchange rates or with newly introduced capital controls. Canada and India are not part of this group. But we are bearing the not insubstantial consequences of a weakened global recovery and the re-emergence of global imbalances.2
As co-chairs of the Framework working group, Canada and India are working together to develop concrete and measurable policy commitments to be tabled at the Cannes G-20 Summit in November. We have made good progress at the G-20 table on indicators and guidelines to define significant and harmful economic imbalances. This experience has helped to foster a common understanding of the issues and problems across the G-20 which, in turn, serves as a first step in achieving greater policy coordination. The working group’s focus now is on the key challenges of fostering greater exchange rate flexibility in emerging markets, encouraging deeper and more significant structural reforms, and strengthening the fiscal commitments made in Toronto. Both co-chairs also believe that there is a symmetry of interests between advanced and emerging economies in reducing the pace of reserve accumulation and are pursuing measurable commitments on this front. Achieving consensus on all of these issues will require a shared understanding of the mutual benefits and, here, Canada and India have an important role to play.
Let me conclude.
The G-20 countries have had considerable success outlining what must be done to enhance the resilience of the global financial system and to achieve stronger, more balanced growth. And the potential achievable benefits of taking collective action are large. The Bank of Canada conservatively estimates that the average net economic benefit to be gained over time by G-20 economies from the stronger agreed capital and liquidity standards is 30 per cent of GDP in present-value terms, or about US$13 trillion.3 Further, if the G-20 initiatives to unwind global imbalances are realized, the Bank estimates that the level of global demand could be $6 trillion to $9 trillion dollars higher by 2015 than when compared to a scenario of deficient global demand.4
But to achieve this promise, the pace of implementation of the G-20 Framework must step up. We are already bearing the consequences of inadequate adjustment. Unsustainable macroeconomic policies are increasing uncertainty, undermining a sustainable economic recovery and raising financial stability risks. And the longer needed adjustments are delayed, the more serious the consequences will ultimately be. Financial stability that is durable cannot be achieved without balanced sustainable growth—nor can growth be sustained without financial stability.
As the recent extreme market volatility has made all too stark, we hand financial markets the opportunity to speculate against needed adjustments at our collective peril. Financial markets are content until they are not. Policy-makers cannot predict when market sentiment will shift, but every delay in implementing policies to safeguard and support sustainable economic growth increases the likelihood of another calamity.
Canada and India are a world apart. My country is a medium-sized, advanced economy. India is an emerging giant. But the elements we have in common are significant and powerful, including our democratic heritage, our market-based approach to economic policy and our commitment to a prosperous global economy. We are strengthening the ties between our countries. And together we share a leadership role on the world stage to achieve a global economy that sustains strong and balanced growth to the benefit of all citizens.
Thank you.
1.    G-20 Working Group on Enhancing Sound Regulation and Strengthening Transparency, “Final Report.” 25 March 2009, which can be found at: <>. [←]
2.    Projections made by the International Monetary Fund show that imbalances narrowed from 2008 to mid-2009, but have been widening ever since and, without policy adjustments, are expected to worsen. [←]
3.    Bank of Canada, “Strengthening International Capital and Liquidity Standards: A Macroeconomic Impact Assessment for Canada,” August, 2010. See also Mark Carney, “Bundesbank Lecture 2010: The Economic Consequences of the Reforms,” speech to Deutsche Bundesbank, Berlin, 14 September 2010. [←]
4.    K. Beaton, C. de Resende, R. Lalonde, and S. Snudden, “Prospects for Global Current Account Rebalancing,” Bank of Canada Discussion Paper 2010-4. See also Mark Carney, “Restoring Faith in the International Monetary Sysem,” speech to Spruce Meadows Changing Fortunes Round Table, Calgary, 10 September 2010. [←]
Source: Bank Of Canada


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Taking control of compliance: how FS institutions can keep up with the ever-changing regulatory landscape



Taking control of compliance: how FS institutions can keep up with the ever-changing regulatory landscape 1

By Charles Southwood, Regional VP – Northern Europe and MEA at Denodo

The wide-spread digital transformation that has swept the financial services (FS) sector in recent years has brought with it a world of possibilities. As traditional financial institutions compete with a fresh wave of challenger banks and fintech startups, innovation is increasing at an unprecedented pace.

Emerging technologies – alongside the ever-evolving concept of online banking – have provided a platform in which the majority of customer interactions now take place in a digital format. The result of this is a never-ending stream of data and digital information. If used correctly, this data can help drive customer experience initiatives and shape wider business strategies, giving organisations a competitive edge.

However, before FS organisations can utilise data-driven insights, they need to ensure that they can adequately protect and secure that data, whilst also complying with mandatory regulatory requirements and governance laws.

The regulation minefield

Regulatory compliance in the FS sector is a complex field to navigate. Whether its potential financial fraud or money laundering, risk comes in many different forms. Due to their very nature – and the type of data that they hold – FS businesses are usually placed under the heaviest of scrutiny when it comes to achieving compliance and data governance, arguably held to a higher standard than those operating in any other industry.

In fact, research undertaken last month discovered that the General Data Protection Regulation (GDPR) has had a greater impact on FS organisations than any other sector. Every respondent working in finance reported that the changes made to their organisation’s cyber security strategies in the last three years were, at least to some extent, as a result of the regulation.

To make matters even more confusing, the goalpost for 100% compliance is continually moving. In fact, between 2008 and 2016, there was a 500% increase in regulatory changes in developed markets. So even when organisations think they are on the right track, they cannot afford to become complacent. The Markets in Financial Instruments Directive (MiFID II), the requirements for central clearing and the second Payment Service Directive (PSD2), are just some examples of the regulations that have forced significant changes on the banking environment in recent years.

Keeping a handle on this legal minefield is only made more challenging by the fact that many FS organisations are juggling an unimaginable amount of data. This data is often complex and of poor quality. Structured, semi-structured and unstructured, it is stored in many different places – whether that’s in data lakes, on premise or in multi-cloud environments. FS organisations can find it extremely difficult just to find out exactly what information they are storing, let alone ensure that they are meeting the many requirements laid out by industry regulations.

A secret weapon

Modern technologies, such as data virtualisation, can help FS organisations to get a handle on their data – regardless of where it is stored or what format it is in. Through a single logical view of all data across an organisation, it boosts visibility and real-time availability of data. This means that governance, security and compliance can be centralised, vastly improving control and removing the need for repeatedly moving and copying the data around the enterprise. This can have an immediate impact in terms of enabling FS organisations to avoid data proliferation and ‘shadow’ IT.

In addition to this, when a new regulation is put in place, data virtualisation provides a way to easily find and access that data, so FS organisations can respond – without having to worry about alternative versions of that data – and ensures that they remain compliant from the offset. This level of control can be reflected even down to the finest details. For example, it is possible to set up access to governance rules through which operators can easily select who has access to what information across the organisation. They can alter settings for sharing, removing silos, masking and filtering through defined, role-based data access. In terms of governance, this feature is essential, ensuring that only those who have the correct permissions to access sensitive information are able to do so.

Compliance is a requirement that will be there forever. In fact, its role is only likely to increase as law catches up with technological advancement and the regulatory landscape continues to change. For FS organisations, failure to meet the latest legal requirements could be devastating. The monetary fines – although substantial – come second to the potential reputation damage associated with non-compliance. It could be the difference between an organisation surviving and failing in today’s climate.

No one knows what is around the corner. Whilst some companies may think they are ahead of the compliance game today, that could all change with the introduction of a new regulation tomorrow. The best way to ensure future compliance is to get a handle on your data. By providing total visibility, data virtualisation is helping organisations to gain back control and win the war for compliance.

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TCI: A time of critical importance



TCI: A time of critical importance 2

By Fabrice Desnos, head of Northern Europe Region, Euler Hermes, the world’s leading trade credit insurer, outlines the importance of less publicised measures for the journey ahead.

After months of lockdown, Europe is shifting towards rebuilding economies and resuming trade. Amongst the multibillion-euro stimulus packages provided by governments to businesses to help them resume their engines of growth, the cooperation between the state and private sector trade credit insurance underwriters has perhaps missed the headlines. However, this cooperation will be vital when navigating the uncertain road ahead.

Covid-19 has created a global economic crisis of unprecedented scale and speed. Consequently, we’re experiencing unprecedented levels of support from national governments. Far-reaching fiscal intervention, job retention and business interruption loan schemes are providing a lifeline for businesses that have suffered reductions in turnovers to support national lockdowns.

However, it’s becoming clear the worst is still to come. The unintended consequence of government support measures is delaying the inevitable fallout in trade and commerce. Euler Hermes is already seeing increase in claims for late payments and expects this trend to accelerate as government support measures are progressively removed.

The Covid-19 crisis will have long lasting and sometimes irreversible effects on a number of sectors. It has accelerated transformations that were already underway and had radically changed the landscape for a number of businesses. This means we are seeing a growing number of “zombie” companies, currently under life support, but whose business models are no longer adapted for the post-crisis world. All factors which add up to what is best described as a corporate insolvency “time bomb”.

The effects of the crisis are already visible. In the second quarter of 2020, 147 large companies (those with a turnover above €50 million) failed; up from 77 in the first quarter, and compared to 163 for the whole of the first half of 2019. Retail, services, energy and automotive were the most impacted sectors this year, with the hotspots in retail and services in Western Europe and North America, energy in North America, and automotive in Western Europe

We expect this trend to accelerate and predict a +35% rise in corporate insolvencies globally by the end of 2021. European economies will be among the hardest hit. For example, Spain (+41%) and Italy (+27%) will see the most significant increases – alongside the UK (+43%), which will also feel the impact of Brexit – compared to France (+25%) or Germany (+12%).

Companies are restarting trade, often providing open credit to their clients. However, there can be no credit if there is no confidence. It is increasingly difficult for companies to identify which of their clients will emerge from the crisis from those that won’t, and whether or when they will be paid. In the immediate post-lockdown period, without visibility and confidence, the risk was that inter-company credit could evaporate, placing an additional liquidity strain on the companies that depend on it. This, in turn, would significantly put at risk the speed and extent of the economic recovery.

In recent months, Euler Hermes has co-operated with government agencies, trade associations and private sector trade credit insurance underwriters to create state support for intercompany trade, notably in France, Germany, Belgium, Denmark, the Netherlands and the UK. All with the same goal: to allow companies to trade with each other in confidence.

By providing additional reinsurance capacity to the trade credit insurers, governments help them continue to provide cover to their clients at pre-crisis levels.

The beneficiaries are the thousands of businesses – clients of credit insurers and their buyers – that depend upon intercompany trade as a source of financing. Over 70% of Euler Hermes policyholders are SMEs, which are the lifeblood of our economies and major providers of jobs. These agreements are not without costs or constraints for the insurers, but the industry has chosen to place the interests of its clients and of the economy ahead of other considerations, mindful of the important role credit insurance and inter-company trade will play in the recovery.

Taking the UK as an example, trade credit insurers provide cover for more than £171billion of intercompany transactions, covering 13,000 suppliers and 650,000 buyers. The government has put in place a temporary scheme of £10billion to enable trade credit insurers, including Euler Hermes, to continue supporting businesses at risk due to the impact of coronavirus. This landmark agreement represents an important alliance between the public and private sectors to support trade and prevent the domino effect that payment defaults can create within critical supply chains.

But, as with all of the other government support measures, these schemes will not exist in the long term. It is already time for credit insurers and their clients to plan ahead, and prepare for a new normal in which the level and cost of credit risk will be heightened and where identifying the right counterparts, diversifying and insuring credit risk will be of paramount importance for businesses.

Trade credit insurance plays an understated role in the economy but is critical to its health. In normal circumstances, it tends to go unnoticed because it is doing its job. Government support schemes helped maintain confidence between companies and their customers in the immediate aftermath of the crisis.

However, as government support measures are progressively removed, this crisis will have a lasting impact. Accelerating transformations, leading to an increasing number of company restructurings and, in all likelihood, increasing the level of credit risk. To succeed in the post-crisis environment, bbusinesses have to move fast from resilience to adaptation. They have to adopt bold measures to protect their businesses against future crises (or another wave of this pandemic), minimize risk, and drive future growth. By maintaining trust to trade, with or without government support, credit insurance will have an increasing role to play in this.

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What Does the FinCEN File Leak Tell Us?



What Does the FinCEN File Leak Tell Us? 3

By Ted Sausen, Subject Matter Expert, NICE Actimize

On September 20, 2020, just four days after the Financial Crimes Enforcement Network (FinCEN) issued a much-anticipated Advance Notice of Proposed Rulemaking, the financial industry was shaken and their stock prices saw significant declines when the markets opened on Monday. So what caused this? Buzzfeed News in cooperation with the International Consortium of Investigative Journalists (ICIJ) released what is now being tagged the FinCEN files. These files and summarized reports describe over 200,000 transactions with a total over $2 trillion USD that has been reported to FinCEN as being suspicious in nature from the time periods 1999 to 2017. Buzzfeed obtained over 2,100 Suspicious Activity Reports (SARs) and over 2,600 confidential documents financial institutions had filed with FinCEN over that span of time.

Similar such leaks have occurred previously, such as the Panama Papers in 2016 where over 11 million documents containing personal financial information on over 200,000 entities that belonged to a Panamanian law firm. This was followed up a year and a half later by the Paradise Papers in 2017. This leak contained even more documents and contained the names of more than 120,000 persons and entities. There are three factors that make the FinCEN Files leak significantly different than those mentioned. First, they are highly confidential documents leaked from a government agency. Secondly, they weren’t leaked from a single source. The leaked documents came from nearly 90 financial institutions facilitating financial transactions in more than 150 countries. Lastly, some high-profile names were released in this leak; however, the focus of this leak centered more around the transactions themselves and the financial institutions involved, not necessarily the names of individuals involved.

FinCEN Files and the Impact

What does this mean for the financial institutions? As mentioned above, many experienced a negative impact to their stocks. The next biggest impact is their reputation. Leaders of the highlighted institutions do not enjoy having potential shortcomings in their operations be exposed, nor do customers of those institutions appreciate seeing the institution managing their funds being published adversely in the media.

Where did the financial institutions go wrong? Based on the information, it is actually hard to say where they went wrong, or even ‘if’ they went wrong. Financial institutions are obligated to monitor transactional activity, both inbound and outbound, for suspicious or unusual behavior, especially those that could appear to be illicit activities related to money laundering. If such behavior is identified, the financial institution is required to complete a Suspicious Activity Report, or a SAR, and file it with FinCEN. The SAR contains all relevant information such as the parties involved, transaction(s), account(s), and details describing why the activity is deemed to be suspicious. In some cases, financial institutions will file a SAR if there is no direct suspicion; however, there also was not a logical explanation found either.

So what deems certain activities to be suspicious and how do financial institutions detect them? Most financial institutions have sophisticated solutions in place that monitor transactions over a period of time, and determine typical behavioral patterns for that client, and that client compared to their peers. If any activity falls disproportionately beyond those norms, the financial institution is notified, and an investigation is conducted. Because of the nature of this detection, incorporating multiple transactions, and comparing it to historical “norms”, it is very difficult to stop a transaction related to money laundering real-time. It is not uncommon for a transaction or series of transactions to occur and later be identified as suspicious, and a SAR is filed after the transaction has been completed.

FinCEN Files: Who’s at Fault?

Going back to my original question, was there any wrong doing? In this case, they were doing exactly what they were required to do. When suspicion was identified, SARs were filed. There are two things that are important to note. Suspicion does not equate to guilt, and individual financial institutions have a very limited view as to the overall flow of funds. They have visibility of where funds are coming from, or where they are going to; however, they don’t have an overall picture of the original source, or the final destination. The area where financial institutions may have fault is if multiple suspicions or probable guilt is found, but they fail to take appropriate action. According to Buzzfeed News, instances of transactions to or from sanctioned parties occurred, and known suspicious activity was allowed to continue after it was discovered.

Moving Forward

How do we do better? First and foremost, FinCEN needs to identify the source of the leak and fix it immediately. This is very sensitive data. Even within a financial institution, this information is only exposed to individuals with a high-level clearance on a need-to-know basis. This leak may result in relationship strains with some of the banks’ customers. Some people already have a fear of being watched or tracked, and releasing publicly that all these reports are being filed from financial institutions to the federal government won’t make that any better – especially if their financial institution was highlighted as one of those filing the most reports. Next, there has been more discussion around real-time AML. Many experts are still working on defining what that truly means, especially when some activities deal with multiple transactions over a period of time; however, there is definitely a place for certain money laundering transactions to be held in real time.

Lastly, the ability to share information between financial institutions more easily will go a long way in fighting financial crime overall. For those of you who are AML professionals, you may be thinking we already have such a mechanism in place with 314b. However, the feedback I have received is that it does not do an adequate job. It’s voluntary and getting responses to requests can be a challenge. Financial institutions need a consortium to effectively communicate with each other, while being able to exchange critical data needed for financial institutions to see the complete picture of financial transactions and all associated activities. That, combined with some type of feedback loop from law enforcement indicating which SARs are “useful” versus which are either “inadequate” or “unnecessary” will allow institutions to focus on those where criminal activity is really occurring.

We will continue to post updates as we learn more.

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By Asheesh Mehra, Group CEO and Co-founder, AntWorks As seen in many other countries, the COVID-19 pandemic sent a shockwave through...

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