With the support of EY, the Lloyds Banking Group and Thomson Reuters, the Royal United Services Institute (RUSI) is set to conduct a detailed review of the current anti-money laundering (AML) regime in order to assess what reforms are required to tackle financial crime in the modern age.
Money laundering threats and vulnerabilities have radically changed since the fundamental architecture of the international AML regime was designed back in the 1990s. Technological developments have enabled criminals to become increasingly sophisticated and evade traditional methods of detection. The range of available responses has evolved, too. By allowing financial institutions and supervisors to harness larger amounts of data, advanced analytics have the potential to significantly increase the impact of AML efforts across sectors and within individual organisations.
Over the next two years, the Financial Crime 2.0 programme will determine how the AML regime could be updated in order to be more effective and reflect today’s technological landscape. The research will be carried out by RUSI, supported by partners from EY, the Lloyds Banking Group and Thomson Reuters.
The programme recognises that better information sharing has enhanced the effectiveness of AML in recent years. Beyond these initiatives, however, wider changes are required in order to allow stakeholders to make the most effective use of this information and respond to new challenges.
To inform this discussion, the programme will combine two concurrent initiatives. The first initiative is policy-focused and will identify how core elements of the AML regime could be improved to create an enabling environment for the use of technology. In a report to be published at the end of 2018, it will establish what reporting requirements provide the most effective and proportionate basis for the use of advanced analytics by AML supervisors.
By mid-2019, it will also assess to what extent the current compliance framework supports the effective prevention of money laundering in the private sector. This research will be informed by the growing role of Artificial Intelligence and also by developments in data protection, particularly the European Union’s General Data Protection Regulation.
The second initiative will focus on the effective mitigation of new money laundering risks that are not fully addressed by the existing AML regime. This will include the threat stemming from the proceeds of emerging crimes such as ransomware, as well as the vulnerabilities of sectors like virtual currencies and e-commerce that call for an innovative AML response.
Throughout this two-year period, the programme will engage with a wide range of stakeholders in the UK and globally through interviews and workshops, building on the collective desire to increase the impact of AML efforts.
Opportunities presented by technology
Tom Keatinge, director of the Centre for Financial Crime and Security Studies at RUSI, said: “We look forward to supporting and accelerating efforts to update the AML regime in the UK and globally with this new programme. Our belief is that the starting point for such an update should be the opportunities of today’s technology. Designing an AML regime that harnesses those opportunities is one of the programme’s key objectives. In particular, we need to make sure that new technologies are not simply used to make the current system work more efficiently. Rather, new technologies have the potential to make a real difference in terms of how effectively we tackle ill-gotten gains. The Financial Crime 2.0 programme will help realise that potential.”
Patrick Craig, EY’s financial crime leader for the EMEIA region, observed: “Financial crime is a systemically important global issue that impacts society and trust in financial markets. Supporting industry efforts to disrupt financial crime is core to our purpose of building a better working world. We recognise that co-ordinated action by financial institutions, regulators, Governments and international bodies is needed, and we’re pleased to be a part of the co-operation that’s being launched. Taking an intelligence-led approach, enabled by technological innovation and behavioural science, is critical to the effectiveness of financial crime management and we want to help the industry innovate and adapt.”
Brian Dilley, director for fraud and financial crime prevention at the Lloyds Banking Group, added: “We’re pleased to support this review in parallel to the work we’re doing with the UK authorities to improve the UK SARs regime. The world has changed since many of the AML regimes were put in place and we need to ensure that we keep pace with the criminals to reduce the harm they do to society. It’s no longer effective to consider different types of financial crime separately as the criminals don’t. Cyber, fraud and money laundering are all part of the same process for them and, unless we look at these issues collectively, the criminals will hide in the gaps. It’s time to use innovation as a tool to fight crime rather than seeing it as a threat. I hope this initiative will help to identify ways in which we can make that happen.”
Phil Cotter, managing director of risk at Thomson Reuters, commented: “This is a vital programme and we’re delighted to be able to play a role in ensuring that the AML regulations are fit-for-purpose in a rapidly changing environment where criminals are becoming ever more sophisticated. Despite the considerable efforts and resources devoted to anti-money laundering, we only detect and recover around 1% of the more than $2.4 trillion of money laundering and other criminal activity currently estimated to be flowing through the international financial system. Headway has been made with information sharing initiatives, but far more needs to be done by both private and public sectors if we’re to move the needle on detection rates of financial crime.”
Cotter went on to state: “At the meeting in Davos for the World Economic Forum, Thomson Reuters and Europol launched a coalition to improve awareness of the extent of financial crime, promote more effective information sharing and establish enhanced processes to disseminate Best Practice. We hope others will join the coalition to persuade decision-makers at the highest levels of the importance of this task and of the uphill struggle we face in dealing with sophisticated criminals for whom national borders are no impediment.”