Megan Butler, Executive Director of Supervision – Investment, Wholesale and Specialists at the Financial Conduct Authority (FCA), spoke of how positive use of technology can assist the fight against financial crime, when she spoke at the Royal United Services Institute in late October 2019.
With hundreds of billions of pounds laundered through the UK every year and the estimated annual cost of fraud in the UK standing at £190 billion, financial crime activities undoubtedly cause considerable damage to our society. The number of fraud offences has risen by 17% over the last 12 months and 15,000 UK consumers called the FCA in the last 12 months to report scams and fraud.
In part, the fight against financial crime can be facilitated by firms and regulators alike having appropriate systems and controls. However, the pace of technological change and the ever-evolving nature of criminal activity requires the industry’s systems and controls to adapt to a changing threat.
The 2,000 firms who participated in the FCA’s first annual Financial Crime Data Return in 2017 made more than 360,000 Suspicious Activity Reports to the National Crime Agency during the course of the year.
The FCA director acknowledged that it is not always easy for firms to identify suspicious activity when she commented:
“What certainly remains the case is that spotting bad behaviour is not easy, particularly when it lurks within an ocean of legitimate activity – the so-called ‘needle in a haystack’ challenge.”
More positively, Ms Butler said many firms were using technology to flag risks and then manually reviewing the identified red flags. Giving a specific example, she said that technology now existed to verify whether photos in different ID documents matched.
Next, she commented that a number of firms had used the FCA’s Sandbox to test digital identity checking systems.
After saying “the FCA has high expectations of ourselves – and firms” in this area, Ms Butler then returned to the topic of how technology can make a difference in her closing remarks:
“Technology, frequently an enabler of crime, can also be a hugely potent tool in the fight against it. Indeed, it may be the greatest tool we have, giving us the chance of finding that needle in the haystack. So, if I could leave industry with one message today it would be don’t be afraid to use technology and innovate to keep criminals out.”
In a speech a few days earlier at Chatham House, the Government’s Economic Secretary John Glen MP also highlighted the impact financial crime can have on ordinary consumers, commenting:
“Tackling dirty money isn’t just about keeping corporate balance sheets clean – it’s about the wellbeing of real people.”
Having spoken to victims of the high-profile issues affecting a mini-bond firm, Mr Glen said that “their stories are truly heartbreaking.”
As an example of the changing criminal methods that would feature in Ms Butler’s speech, he mentioned “foreign criminal gangs co-opting international students at British universities in order to launder money through UK banks.”
The minister acknowledged that more could be done to improve collaboration between public and private organisations in fighting financial crime, and also that the Financial Action Task Force had advised the Government to overhaul the IT systems it currently uses to handle Suspicious Activity Reports.
In conclusion, Mr Glen summarised the way forward by saying:
“I have one concluding message for you this morning it is that Brexit must not – and will not – knock us off course. There will be no weakening of our resolve. If anything, Brexit must be the spur to go further. Our competitiveness, our economic strength as a nation, is predicated on being a safe place to do business.
“And if we do wish to forge new economic partnerships around the world, and if we are to conquer the markets of the future, then we need to ensure this remains the case. This goal requires a team effort, shared across the private and public sector, with civil society, and between the UK and our international partners.”
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