How the contingent workforce can help weaknesses in financial crime defences
The Financial Conduct Authority has released the results of a multi-firm investigation into financial crime controls at challenger banks. The FCA conducted the evaluation in 2021 in response to the National Potential Assessment of money laundering and terrorism financing released in 2020, which highlighted the risk that challenger banks’ rapid onboarding processes would appeal to criminals. The FCA’s investigation found that technology is being used effectively to promptly identify and verify consumers and that the financial crime risks faced by challenger banks and those faced by traditional retail banks are similar. However, at the onboarding stage and beyond, there are various places where improvements might be made. All challenger banks have been asked to study the FCA’s recommendations and put them into practice.
The FCA discovered:
- Customer due diligence flaws, including the use of enhanced due diligence. The FCA stated that the UK Financial Intelligence Unit had noticed a significant spike in Suspicious Activity Reports from challenger banks, which is concerning.
- Frameworks for assessing consumer risk that is insufficient or non-existent.
- Management of transaction monitoring alerts is ineffective.
There are flaws in the way financial crime change programmes are managed.
How can the contingent workforce improve BAU as well as key weaknesses in your financial crime functions?
Every component of your compliance operation needs rigorous examination and improvement, and with compliance teams already under substantial BAU pressure, many find it difficult to have a true sense of what additional changes need to be made, and sometimes in a short timeframe.
Contingent resource teams can ensure that “no stone is left unturned,” and in a high-pressure regulatory climate, hiring contingent resource can make all the difference in identifying the flaws in your risk assessments and developing specific plans to address them.
Risk assessments will necessitate a thorough examination of all controls. Many firms, on the other hand, fail to analyse individual hazards, which can lead to erroneous risk assessments across the board. The fact that many compliance teams are understaffed and lack the internal capacity to guarantee that any weaknesses are properly and fully recognised and corrected is a major contributing factor.
CDD is one area of compliance that is frequently investigated. Even though the processes are straightforward, many banks and other financial organisations still get it wrong. Many people look to automation to fill these gaps, but the reality is that technology needs to be overseen by adequately skilled people. In many circumstances, transaction monitoring alarms need to be strengthened, which can only be done with the correct combination of people and technology.
Firms should be quick to implement new hiring strategies that take into account the changing personnel situation, which includes more financial crime, increased regulatory demand, and additional BAU work following the pandemic’s delay periods.
More organisations are turning to the contingency model to help them deliver on critical projects, deal with surges in work, and get back to business as usual, thanks to new trends in hiring and retaining people. It tackles the significant challenge of quickly and cost-effectively staffing without the need for extensive interviews or onboarding.
Utilising the expertise of contingent resourcing can offer many firms breathing space in terms of resolving any issues their AML controls may have. Setting up the right teams to ensure any gaps are identified will be key for firms this year as regulators place more pressure on financial service participants to strengthen current compliance systems and controls.
Works cited: finreg.shearman.com. (n.d.). Shearman & Sterling LLP | FinReg | UK Financial Conduct Authority Acts to Improve Financial Crime Issues at Challenger Banks. [online] Available at: https://finreg.shearman.com/UK-Financial-Conduct-Authority-Acts-to-Improve-Financial-Crime [Accessed 3 May 2022].
