Despite the exaggerated headlines and technological advancements, financial crime continues to grow. Legacy technology, widespread adoption of digital payments, and unregulated crypto are creating new opportunities for financial criminals to exploit the system.
To combat fincrime, governments and regulatory bodies are cracking down on non-compliance all over the world, with stronger regulations and increased scrutiny.
Fortunately, technological advancements are helping financial institutions and other regulated entities improve their AML/CTF compliance processes in an efficient and effective way. At Identitii we are continuing to support our clients to ensure complete and accurate reporting to regulators like AUSTRAC and NZ FIU.
With the end of 2022 fast approaching, now is a great time to reflect on the changes and challenges happening with risk and compliance across the financial, technology, and regulatory sectors.
1. AUSTRAC extends its focus beyond the big banks
In a recent announcement, Nicole Rose, CEO of AUSTRAC, said, “AUSTRAC is putting the whole (sports betting) industry on notice to lift their game…Australia must be at the forefront of fighting this key enabler of organised crime if we are going to have a real impact on criminals profiting from harming the Australian community.”
With the increased attention, scrutiny, and investigations into casinos, clubs, and pubs, AUSTRAC has shown their intent to expand focus beyond financial services.
AUSTRAC have also invested heavily into their educational resources over the past year, provide guidance to assist regulated entities to get their compliance reporting right. The regulator visited over 300 businesses to assist with compliance processes and offer guidance.
2. ISO 20022 migration delayed but still moving forward
ISO 20022 dominated headlines over the past year, with the migration deadline looming. The adoption of the new payment standard is a critical step in transforming the efficiency of transactions and regulatory reporting. The richer and more structured data will aid in mitigating fraud.
However, ISO 20022 is more of a step in the right direction, rather than the destination. Rather than treating it as a one off project, this is an opportunity to instead make ISO 20022 migration a catalyst for fixing broader issues within organisations.
Although ‘send and receive’ is valuable, it is only the beginning when it comes to the intersection of payments and other systems within banks. If ISO 20022 is adapted at the payments end, data still needs to be translated from the other downstream systems used in a bank, such as treasury or home loan origination.
Now is an opportunity for financial institutions to consider the way they approach their migration, technology choices, and payment processes.
3. Cryptocurrency regulation inevitable
“Deliberately evasive, facilitated money laundering at scale and created massively untoward risk” These are comments regarding crypto firms from Ashley Alder, the incoming chair of the Financial Conduct Authority (FCA) in the UK.
Cryptocurrency regulation has been a hot topic across the industry over the past year, fuelled by the widespread adoption of digital currencies and the dramatic downturn in coin valuations in the latter half of 2022. With the recent scandal of FTX leaving more than a million people with losses, the spotlight on regulation is stronger than ever.
Regulators and lawmakers are more focused on this space as they grapple with the tension between encouraging innovation and preventing financial crime.
4. 2023 the year for Tranche 2?
Real estate agents, lawyers, and accountants professionals were warned by Nicole Rose that without AML laws in place they may be unwittingly washing dirty money.
A similar sentiment was echoed by Nathan Lynch, author of ‘The Lucky Laundry’ in his interview. He said that the reluctance of “gatekeeper professions” such as lawyers, accountants and real estate agents working in the housing market to adopt AML/CTF reporting has entrenched Australia’s status as a money laundering hub.
With more headlines coming out in the past year about financial crime, AML/CTF compliance breaches, and the lack of movement of Tranche 2 regulations, perhaps change will come in the next year.
Looking ahead to 2023…
Next year looks set to be another big year for RegTech as the boards of regulated entities move to reduce financial crime risk by using technological innovations from third party suppliers. “Legacy systems aren’t going away quickly but RegTech can help to turbo charge financial crime compliance and free up the compliance teams to focus on more complex issues.”