Defining Effective Financial Crime Risk Management: A Path Forward

Introduction

A consensus is emerging among stakeholders that the current approach to financial crime risk management needs refinement and standardization. The system’s focus on mandating compliance has led to a mismatch between input and outcomes, with law enforcement agencies often receiving incomplete or inaccurate information.

Breaking Down Silos

At the national level, fragmentation among regulators, policymakers, law enforcement, and the private sector has hindered the development of a coherent approach to financial crime risk management. A “whole system” approach is necessary, with criminals operating beyond jurisdictional boundaries, necessitating a coordinated effort across borders.

Risk-Based Approach

There is consensus that the risk-based approach remains a critical driving principle, requiring continued focus on its implementation and refinement. Intelligence sharing, collective prioritization, and coherence between policymakers and supervisors are key enablers to this approach.

Addressing Mismatches

A mismatch persists between what is put into the system and the outcomes achieved. This is particularly true for input from the private sector, where significant resources are mobilized to meet reporting obligations, but often do not yield meaningful results. Implementing reforms that ensure supervision and examination center on identified and agreed measures of effectiveness can help address this issue.

Fundamentals of AML/CFT

The building blocks of a strong anti-financial crime framework must be addressed holistically. The FATF Global Network encompasses jurisdictions with varying levels of maturity, but the implementation of AML/CFT fundamentals is critical to achieving successful outcomes against crime.

Courage for Change

Ultimately, courage is needed to drive change in this complex system. A revised approach to information sharing, incorporating binding recommendations and a focus on establishing domestic and cross-border mechanisms, could be a crucial step forward.

Facilitating the increased sharing of financial activity, threat, and risk data linked to crime and terrorism is essential. Effective cross-institution, cross-sector, and cross-border data exchange must be the ambition. The FATF has made progress in this area but can further test implementation status through its Mutual Evaluation Report process.

A Path Forward

To achieve a more effective financial crime risk management system, it is time to consider further changes to the FATF standards, incorporating binding recommendations on establishing domestic and cross-border information sharing mechanisms as part of a key metric for an effective anti-financial crime system. This would set a global baseline, enabling stakeholders to see a fuller picture of financial criminal activity.

Conclusion

Defining an effective financial crime risk management system requires a coordinated effort across borders and sectors. A “whole system” approach, incorporating binding recommendations on information sharing, can help bridge the gap between input and outcomes. With courage and commitment, we can create a more effective system to prevent and detect financial crime.