Too much regulation ‘hampers fight against financial crime’

A growing regulatory burden, increased personal liabilities on compliance professionals, barriers to greater collaboration and evolving criminal methodologies represent the most significant challenges to banks’ ability to combat financial crime.

The finding is part of the newly-published Future Financial Crime Risks report, produced by analytics group LexisNexis Risk Solutions with support from the British Bankers Association (BBA). The report provides a review of financial crime and its evolving risks.

It finds that the UK’s biggest banks are spending up to US$1bn (£660m) each year to comply with anti-money laundering (AML) regulation, yet both banks and law enforcement agencies express concerns over the changing face of financial crime, and their ability to effectively combat emerging risks.

“The regulatory landscape is ever expanding and increasing in complexity, with regulations themselves becoming ever more difficult, and expensive, to administer,” note the report’s authors. One bank professional comments: “Costs are just a symptom of a culture of compliance for compliance’s sake,” while another expresses the widely-held view that the system is no longer focused on providing information to help catch criminals.

AML alarm

Financial professionals in the banking industry also express doubts were also revealed over the effectiveness of the European Union’s (EU) Fourth AML Directive: 32% of survey respondents say that it will have no effect – or could even increase levels – of money laundering across Europe, while 47% predict it will decrease it “somewhat”. Only 17% expect the Directive to have a dramatic effect.

There are also concerns about a shortage of AML compliance professionals in the UK. Increasing levels of personal liability are expected to exacerbate this gap, as 50% of compliance professionals expect the UK’s Senior Managers and Certification Regime (SMCR) to make their jobs more or a lot more stressful. Over half (54%) say that given the opportunity they would choose another career path in light of the increased personal liabilities.

The report stresses the need for greater collaboration among banks, law enforcement agencies and regulators, as well as within banks themselves. “Alongside continuing mistrust towards banks, data protection regulations were found to restrict the ability of organisations to share information, deterring collaboration,” comment the report’s authors.

When looking at future risks, the report finds that 44% of banking and financial services professionals cite criminal methodologies as the biggest single emerging financial crime risk to their business in the next year, followed by a lack of personnel in their risk function (13%).

Over the next two years, preventing cybercrime is seen as the single biggest area of investment for 37% of respondents, followed by fraud (23%) and AML (20%). The expansion of online and mobile banking – and particularly virtual currencies – are regarded as the most significant challenges banks are set to face in the future when fighting financial crime.

Meeting the challenge

“British banks are on the front line in the battle against financial crime,” says Chrisol Correia, director, global AML compliance, LexisNexis Risk Solutions. “Both the nature of their business and regulatory design has positioned them as the first line of defence against money laundering, terrorism funding, and an expanding array of other illicit activities.

“Speaking to those who dedicate their careers to tackling financial crime reveals genuine fears about the ability of banks to continue to perform this function in the future, however. This report makes it clear that financial crime cannot be eradicated through strategic investment alone.

“Efforts to combat money laundering that are based on limited understanding and knowledge of the industry and risks will exacerbate the problem in the future. To combat financial crime, banks and law enforcement must work together to understand the future risks to adopt a proactive, rather than a reactive approach. If we can understand the risks of the future, we can perhaps prevent them from materialising.”


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