The global compliance trends you should be making note of
In our latest Momenta insight, we focus on the latest notable news and developments to have taken place across the globe in the financial compliance space.
The risks of poor compliance monitoring have never been clearer
The estimated amount of money laundered globally in just one year is 2 – 5% of global GDP, or $800 billion – $2 trillion in current USD.
Addressing this potential risk has never been more imperative for organisations to get right. The global COVID19 pandemic has led many to review their compliance functions as risks increase and criminals use weaknesses in remote settings to deploy financial crime.
So, what are the key issues affecting compliance teams globally and what can your compliance teams do to make sure that they are as efficient and secure as possible?
Read on to learn more about the trending risks that should be front of mind during 2021 – some you may be very familiar with, whilst others you may need to become more aware of in the months to come…
KYX is the new KYC
Digital transformation (DT), the phrase of 2020, has allowed businesses to resume BAU during the global pandemic. However, it has also shown-up some key issues when looking at digital KYC. One of the biggest challenges when it comes to DT is identity verification and the eKYC process. Companies are now looking to solve this problem by seeing how they can monitor the “KYX” factor when screening customers – X relating to any associated parties, employees, vendors, channel partners etc. directly linked to the person who is being screened for KYC. The ‘X’ is the element that in a digital landscape has the most risk attached, so what is needed is a system that enables organisations around the globe to manage compliance requirements, such as KYC, AML and GDPR, by providing a layered approach to identity proofing and corroboration.
Prepare for the implications Brexit will bring
The UK is no longer obligated to follow the EU’s Money Laundering Directives (MLDs), however, there has been no talk to stop the existing Fifth Money Laundering Directive (5MLD), which already has been implemented in UK law. An important point to mention is that the UK has not chosen to implement the EU’s Sixth Money Laundering Directive (6MLD), as the government believes its current AML framework covers most of the 6MLD’s requirements and is robust enough. This can create some difficulty as 6MLD will require EU member states to implement the offence of failure to prevent money laundering, such that entities may be held accountable for money laundering where it has occurred for their benefit, by a person under their authority, due to lack of supervision or control.
The UK has not passed this corporate offence so far. There have been proposals to amend the Financial Services Bill so that businesses or individuals regulated by the FCA would be held liable for failure to prevent economic crime, which would extend not just to money laundering, but also to fraud, false accounting, Proceeds of Crimes Act (POCA) offences, insider dealing, and providing false or misleading statements. But thus far, none of these proposals has made it any further than a potential change, rather than becoming an actual amendment to the Bill itself.
Increase your anti-fraud controls
Criminals will continue to exploit vulnerabilities as the pandemic and use them as levers to carry out financial crime. Firms will need to ensure that their controls remain suitably robust, and that staff remain vigilant to identify and report increased activity as it arises. Remote working models do not make it easy for firms to monitor fraud as individuals are not able to interact with fellow workers directly, and real time monitoring clearly has become a bigger challenge during this period . Individuals working alone are more vulnerable to exploitation by fraudsters and may be not realise that they have allowed fraud to take place before it is too late. Ensuring that applicable staff are adequately trained and educated about fraud awareness and applying this knowledge and understanding in their day-to-day work will be critical.
This process of ever more efficient staff training and awareness can also be seen in the need for enhanced email data protection. Significant business data hacks are few and far between, however one alone can cause huge disruption as well as financial and reputational damage to a business,. Hackers can use zero-day attacks to adversely affect computer programs, data, other computers, or an entire network, until action has been taken to address the specific vulnerability. Hence, the need for organisations to ensure that their systems, staff, and training processes are fit for purpose of email data protection cannot be over-stated.
Automation is key – but this process will always need people
The Pandemic has increased the focus on technology and digital operations within financial crime, as well as seeing an increase from regulators such as the FCA in promoting the use of AI/ tech solutions. It is no surprise that technology such as AI can help periodic review assessments as well as conduct review checks based on certain triggers (such as a material change in the client profile gathered by internal and external data). Legacy IT systems are often not agile enough to respond to changes required either by a shift in regulation or to support specific remedial projects and therefore need a technological solution.
Crucially, a technology and people solution is required to either deal with a one-off project or to form a turnkey business support function for part of a firm’s business processing.
If your business has been impacted by additional regulatory or compliance pressures during the pandemic and needs additional contingent staffing support in your compliance departments, speak to us today to see how we can help in supplying experienced and effective additional members to your team.
 Woolley, R. (2021, January 30). The Top Regulatory Trends to Watch in 2021. Corporate Compliance Insights. https://www.corporatecomplianceinsights.com/top-regulatory-trends-2021/
 Robertson, Elizabeth, and Zahra Mashhood. “Recent AML Enforcement Trends in the UK – Lexology.” Lexology, 8 Apr. 2021, https://www.lexology.com/library/detail.aspx?g=77dfe658-d38b-4869-89b7-984b90d03e68.
 Dasgupta, S. (2020, December 3). Special contributor report: Top 5 Emerging Trends for AML Compliance: Dawn of a New Decade 2021! ACFS.Org. https://www.acfcs.org/special-contributor-report-top-5-emerging-trends-for-aml-compliance-dawn-of-a-new-decade-2021/
 5, L. (2020, December 11). 5 anti-money laundering (AML) trends for 2021. Global Banking & Finance Review. https://www.globalbankingandfinance.com/5-anti-money-laundering-aml-trends-for-2021/