Financial Institutions Embrace New Approach to Combat Financial Crime
In a bid to improve their fight against financial crime, leading financial institutions are adopting a new approach that prioritizes intelligence gathering and collaboration with law enforcement agencies.
Limitations of the Traditional Model
The traditional model of financial-crime compliance and anti-money laundering (AML) has been criticized for its inefficiencies and limited effectiveness. Industry experts argue that the current system relies heavily on procedure-driven activities, resulting in high false-positive rates and a lack of focus on identifying and mitigating real risks.
The New Approach: Intelligence Gathering and Collaboration
In contrast, the new approach emphasizes the importance of shared intelligence and collaboration between financial institutions and law enforcement agencies. This includes:
- Building networks of external partnerships with organizations such as:
- Local law enforcement
- Tax-collection agencies
- Shipping companies
- Airlines
- Social-media companies
- Non-profits
- Sharing information and insights to better understand institutional exposures to parties involved in proscribed activities
- Identifying patterns and trends that may indicate illegal activity
- Using advanced machine-learning algorithms to process and filter large amounts of data
Collaboration with Law Enforcement
Close collaboration with law enforcement is crucial in this new approach. Financial institutions are bringing former law-enforcement officers onto their investigative teams to leverage their expertise and relationships with local authorities. This partnership enables financial institutions to better understand emerging threats and local priorities, ultimately leading to more effective investigations.
The Joint Money-Laundering Intelligence Taskforce (JMLIT)
The JMLIT in the United Kingdom is a prime example of this public-private partnership in action. The taskforce brings together over 40 financial institutions, the Financial Conduct Authority, Cifas, and five law-enforcement agencies to share information and intelligence on money laundering and other financial crimes.
Streamlining AML Operations
Financial institutions are also streamlining their current AML operations to make them more efficient and effective. This includes:
- Reviewing all FCC/AML activities to eliminate redundant controls and processes
- Automating manual tasks
- Improving data quality
Benefits of the New Approach
The benefits of this new approach are significant. By improving detection rates and reducing false positives, financial institutions can:
- Free up resources for more valuable activities, such as special investigative teams that partner with law enforcement agencies
- Elevate their profile as socially responsible actors in society, leading to increased public confidence and improved shareholder value
Regulatory Incentives Needed
Regulatory incentives are needed to encourage banks along this path and provide a safe harbor for testing innovative solutions. Some regulators have indicated their openness to new approaches, and financial institutions should take advantage of these opportunities to improve detection rates and reduce financial crime.
Time to Adopt a New Approach
The clock has run out on refining the existing model of financial-crime compliance and AML. It is time for financial institutions to adopt an intelligence-driven, investigator-centered approach that focuses on intercepting the proscribed activities of highest risk to their organization.