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Compliance: This Time It’s for Real

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Global trade has matured. Complex contracts facilitate the cross border flow of goods and services – and more than we’d wish, criminal activity too. As financial transactions become more sophisticated, so do the opportunities for criminals to exploit them for money laundering, terrorist financing, and other illicit purposes.

The response from regulatory bodies has historically been uneven, but the tide is turning. Both sides of the Atlantic are witnessing a renewed focus on effective compliance, moving beyond the “box-checking” exercises that have created inevitable vulnerabilities.

A Transatlantic Push for Financial Safety

In Europe, the EU Anti-money Laundering Authority will increase the bloc’s active scrutiny of financial transactions. The UK’s Financial Conduct Authority (FCA) is vigilant in identifying compliance shortcomings, with a particular focus on Know Your Customer (KYC) and due diligence. Recently, the UK Solicitors Journal revealed a 42% rise in attempts at financial crime, with over a quarter of regulated firms falling victim. Similar concerns echo across the professional services sector, with some big name LLPs being held to account.

It’s similar in the US. The Financial Crimes Enforcement Network (FinCEN) is actively tackling a range of unlawful behaviors, including money laundering through property transactions, Fentanyl trafficking, and the misuse of investment advisor roles for criminal purposes.

Common Vulnerabilities Identified

In the UK, the FCA pin-point four weakness, common to many organizations:

  1. “Discrepancies between firms’ registered and actual activities
  2. Financial crime controls which had not kept pace with business growth
  3. A failure to risk assess their own or their customers’ activities properly
  4. Inadequate resourcing and oversight of financial crime issues and requirements”

None of these are unique to the UK; they can be found in every jurisdiction.

Strategies for Effective Compliance

So, how are we to address these threats? The answer is a two-pronged approach:

  1. Regulatory bodies must continue to scrutinize the quality of compliance,
  2. Individual businesses, especially in the financial sector, need to take ownership of their compliance efforts, ensuring they are comprehensive and effective.

For most businesses, partnering with a third-party compliance service provider offers the best solution. The alternative, developing in-house capabilities while simultaneously trying to ensure compliance today, often leads to poor results in both areas.

The Role of Third party Compliance Providers

An ideal compliance service provider should offer a flexible solution, including:

  • Fast and thorough customer screening against sanctions lists, Politically Exposed Persons (PEPs) databases, and watchlists.
  • Real-time customer identity and address verification, including the ability to identify and flag stolen or compromised information.
  • Customization options to tailor the solution to the specific needs of each business.
  • Automated transaction monitoring that compares customer activity against expected patterns and historical behaviors.

Further, creating in-depth customer profiles from multiple databases provides better understanding of individuals. Sidestep data silos by collaboration between organizations, even competitors, and the level of protection is hard to beat.

Finally, an accurate and real-time audit trail is essential to ensure compliance teams are prepared to demonstrate their effectiveness when called upon.

Delivering Innovative Solutions for Security

While the challenges seem daunting, such solutions do exist. Compli, from Essiell Compli, is designed to deliver exactly those comprehensive and scalable compliance solutions, with exceptional depth, quality, and reliability.

By working together, regulators, businesses, and innovative technology providers like Essiell Compli can create a more secure environment, combat financial crime, and safeguard the global financial system – effectively.

By Declan Morton, staff writer at Essiell Ltd.


For reference

https://www.fincen.gov/news-room , https://www.fca.org.uk/news

FCA warns firms over anti-money laundering failings, FCA, March 5, 2024

Get proactive with financial crime compliance in 2024, Moody’s February 21, 2024

Financial crime attempts surge among regulated firms, Solicitors Journal, February 22, 2024

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