5 Ways that Financial Crime Compliance will Change in 2020

Financial Crime Compliance

Financial crime is a global problem that may be affecting you and, the environment around you, without you even knowing it. The value of illegal wildlife trade has an estimation of between $5 billion and $20 billion per year, one of the most lucrative illegal businesses, following narcotics, human trafficking and weapons trade. As technology becomes more advanced, financial criminals are becoming more sophisticated and adaptable in their illicit methodologies; therefore, it is important for legislation to stay updated and mirror the flexibility of their illicit counterparts in order to effectively combat financial crime. Anti-Money Laundering (AML) was a strong focal point for 2019, with new directives and legislation becoming adopted by jurisdictions to combat this global rise in financial crime. 2020 is set to follow-on, improve upon and adapt to foundations that financial crime compliance laid in 2019. This article will draw upon 5 key predictions for 2020 in regards to financial crime compliance. We must address the main issues faced today and how companies and countries can overcome them to stamp out or minimise financial crimes.

Financial Crimes & Hefty Fines

The financial system has heavily evolved in the last decade, rapid payments, instant payments, PSD2 and other advancements have acted as vehicles for financial misuse, resulting in money laundering and harmful effects on economies, society and the environment. Since 2015 there has been a steady rise in money laundering fines issued, notably, 2019 saw almost double the amount of fines issued than 2018. In 2019, global money laundering fines exceeded $8 billion, whereas in 2018 the figures were around $4 billion. France, alone, issued fines of over $5 billion and the global average penalty for money laundering was around $145 million.

Money Laundering
Source: https://www.encompasscorporation.com/blog/why-are-aml-fines-increasing-deep-dive-into-encompass-analysis/

 

The above chart symbolises a need for change in regards to fighting financial crime. Governments, regulators and agencies are scrambling to find optimal solutions to reduce this illicit activity and effectively monitor illegal financing. Below is a variety of key areas that 2020 may unveil in an attempt to reduce financial crime and ensure compliance.

  1. Private-to-Private Information Sharing:

    Currently there is a major lack of information sharing across private companies at a global level. Financial crime is a global issue, yet institutions are combatting them at a microscale. 2020 should see an increase in information sharing at a macro-level. Information sharing is currently difficult due to legislative barriers and due to a lack of digitalisation. Only 54% of data and legal documentation, that is needed to carry out effective due diligence, is digitalised. Therefore, before private information can be successfully shared, it must be digitalised for institutions to utilise effectively. However, with an increasing rise in data privacy and security, it is difficult to share data without breaching data protection legislation. Institutions will opt for information digitisation and information and data sharing solutions for the private sector.

  2. Contextualised Financial Crime:

    2020 should see a focus on redefining the context of financial crime. By this, we mean, currently transactions monitored are based upon a fixed set of rules and thresholds. This approach can allow anomalous behaviour that escapes the standard of protection and monitoring, allowing illicit activity to go unnoticed. Monitoring needs to be contextualised and not generalised in order for future success in preventing financial crime. In order to contextualise monitoring, there needs to be more agile and optimised systems in place that can account for anomalous behaviour, systems that can learn, adapt and predict. In order to make more informed decisions you need relevant content that you can analyse. A prediction for the near future of AML is to integrate multiple sources of data into a centralised system; this can ensure a wider scope of information, account for numerous circumstances and allow for an increased contextual monitoring approach. Additionally, enhancing data analysis can aid this approach, by better understanding the context of transactions you can increase your understanding of consumer activity. Taking informed data-driven approaches based off a centralised data system can provide necessary contextualised financial crime compliance.

  3. Real-Time AML Monitoring:

    This approach is perhaps in its early stages, but 2020 will see a trend in focussing on real-time AML monitoring to allow for quicker decision making than the current batch file process. With the increased usage of artificial intelligence (AI), financial institutions are encouraged to take innovative approaches to work in coexistence with current risk-based approaches. This hybrid of AI and current practice can allow for a prioritisation of scenario-based alerts and quickly and automatically adapting to new money laundering schemes. Additionally, 2020 predicts the convergence of AML transaction monitoring and inbound fraud payment monitoring for operation efficient purposes. This implementation may also aid in preventing financial crime by providing more data to be analysed and contextualised to support the above two factors.

  4. Quality over Quantity:

    To only implement technical compliance is not enough, it is important to also provide higher quality of information. 2020 will place a great emphasis on the quality of information provided to the necessary authorities. Quality of information concerning financial crime will also parallel an awareness movement, to make people, companies and institutions aware of the dangers involved with financial crime, the possibilities and the realism of the threat. Illicit wildlife trading, human trafficking, terrorist financing, arms dealing, drug smuggling and more are all activities that bear implications in the reality of financial crime. These very serious social, economic and environmental issues need to be addressed and managed. Therefore, through spreading relevant and informative information and, moreover, being able to provide the quality information to authorities, we can collectively help reduce financial crimes.

Companies have already begun to adopt campaigns to spread financial crime awareness. For example, Barclays campaigned to fight against human trafficking.

“We need to prevent it entering the supply chain, we need to educate other companies, and we need to raise awareness beyond our consumer base.” – Paul Horlick, Director – Head of Barclays’ Financial Intelligence Unit

Barclays, as a bank, understands the importance of preventing money laundering and is part of the process in redefining how big businesses view, and combat, financial crime. The emphasis on a higher quality of information will bring an increase in thorough investigations that can aid relevant authorities in their mission to end illicit financial activities.

5. Conformity – Alignment of Standards:

As previously stated, financial crime has implications at a global level, money laundering doesn’t stop at the border and criminals will take any means and jump through any loophole in the law that presents itself. 2020 calls for an alignment in regulations and standards to combat financial crime, compliance at this level should hold an international standard that companies can abide by. This factor will also aid to the centralisation of information discussed in the first prediction. Importantly, jurisdictions must first issue a consistency of standards for crimes, punishments and all that falls under the umbrella of financial crime compliance. The EU has taken great leaps in bringing about consistency through their 5th AML directive. The EU are working on implementing a 6th AML directive that will include tougher sentencing and additional offences of criminal liability in the form of aiding and abetting. The EU has acknowledged the necessity for an alignment of standards and has worked tirelessly to compile a respectful standard for companies to follow. Yet, what must follow is a global standard for financial crime punishment and regulations that will, hopefully, reduce financial crime and stop individuals from successfully manoeuvring across jurisdictions.

Bright Days Ahead

Financial crime compliance has undergone transformation and 2020 does not see it slowing down. Newer legislation, technology and methodologies will consistently be tested until financial crime is reduced and, hopefully, eradicated. The above predictions each come with their own hurdles and tests, yet they each propose a slightly better future for financial compliance. We shall see across the next decade if the industry takes the necessary routes to successfully combat illegal financial activities.

MENA’s Finest AML

Cedar Rose has understood the issue of financial crime and has embedded, in their culture, a desire to tackle money laundering from the hardest of regions. We have over 23 years’ experience in the Middle East and North Africa, where we have been combatting money laundering through enhanced due diligence investigations using a collection of resources, local networks and expertise to help companies put an end to financial crime. Tackling financial crime throughout the MENA region is especially difficult due to the scarce digitalisation of data, secrecy of free-zone jurisdictions and its particularly volatile political climate. However, our team of expert researchers can help you with your due diligence needs, we have the experience, the resources and the knowledge to help with your AML requirements. It is our duty to help spread the awareness of financial crime and to help companies avoid it at all costs. This is a global problem, which requires a global solution and Cedar Rose are proud to be part of the solution.

Check out our recent article on The China-Pakistan Economic Corridor

Written By Jack Evangelides, Marketing Executive

4 Steps for Effective KYC and KYB Process – Compliance (Infographic)

KYC/KYB

Know Your Customer (KYC) and Know Your Business (KYB) are two fundamental aspects in today’s business. It is important to stay compliant and for your platform to provide a verification service for all customers. Visually see how, in only 4 steps, our identity verification service works for KYC and KYB compliance. 

For a full article on KYC and KYB, check out “4 Step Process for KYC/KYB – Using Electronic Identity Verification

Additionally, contact helen.lambrou@cedar-rose.com directly for more information on identity verification or visit our identity verification page here.

4 Step Process for KYC/KYB – Using Electronic Identity Verification

KYC-KYB

Know Your Customer (KYC) or Know Your Business (KYB) is the concept of identifying an individual, for KYC, or a business, for KYB, before entering a business relationship. The ability to verify the identity of a person or a company prior to any business arrangements or customer on-boarding can help you mitigate risks. KYC is often tied closely with Anti-Money Laundering (AML), you verify and confirm the identity of an individual or business in order to ensure a business relationship is not misused. One of the most efficient and effective tools on today’s market, to verify identity and to ensure compliance, is Electronic Identity Verification (eIDV). It is important to understand the specifications of eIDV and to recognise how it may be used to help with KYC and KYB procedures and protocols.

What is Electronic Identity Verification?

Electronic Identity Verification, or eIDV, is the process of using digital methods for standard and comprehensive KYC and KYB compliance checks. Private companies are increasingly using eIDV services to instantly confirm the identity of an individual or an entity, such as a company. Identity is confirmed via an instant cross-reference with a database, providing match or no match results. So how does eIDV help?

Electronic Identity Verification takes into consideration a person’s name, address, ID and other factors (depending on the country of origin), standard information that users input when creating accounts for forex, online gaming, for fintech companies, e-commerce sites and more. With the aforementioned information, databases are meticulously and, instantly, scanned until a result is found, either a match, and thus, a verification, or a no match, and thus, a non-verification. The user would then be able to proceed to create the account, or not, depending on the result.

The Importance of Identity Verification

Using a quality and trusted eIDV service to confirm identities will enhance your on-boarding procedures whilst staying compliant and mitigating risks. Naturally, consumers are unaware and unconcerned with business policy, data protection and regulatory pressures faced by businesses; they expect a quick and easy service when conducting business online. Using eIDV, your customers get an enhanced service whilst your company adheres to compliance and regulatory rules. Keeping your company compliant with identity verification will bolster trust and transparency for your company.

“Organizations of all types rely on identity for compliance reasons, to help mitigate the risk of fraud, and to build trust and safety of their services. With better identity frameworks, these organizations can lower costs, lower risk, improve their ability to expand into new markets, and better build trust with customers, employees, suppliers, third-parties, and all their connections.” – Trulioo

Moreover, reputational consequences are, arguably, at an all-time high, with the increasing importance of online media and news, it is important to have a strong and trusted reputation. Without indulging in proper compliance protocols your company’s reputation can be majorly affected, which may deter new business potentials. Data is another factor that has massively grown in importance over the last decade, and making sure data is properly handled and verified is an important role that each company must take part in, without it, you can lose all credibility and trust from clients, investors and more. Therefore, we must ask, how does the KYC/KYB process work?

Identity Verification Process for KYC and KYB

1)      Connect to a Database Provider

First and foremost, before you can even begin to verify data, you need to have access to a system, to a database, that has already collated and cleaned the data, ready to be used. However, you also need to know what type of data you are looking for. For example, at Cedar Rose, we specialise in the Middle East, Romania and Russia, we have quality data on individuals and companies for companies to use our database and perform identity verification checks. Connecting to our database can also be done via API, directly from our system to yours. The data has been translated and is available for checking in either native (eg; Arabic, Cyrillic) and Romanised characters.

2)      User-Side Input

Whether you are an e-commerce company, forex, gaming or more, your users will have to input data at some point of your process that will then need to be verified. Such data can be, first name, last name, address, identification data and so on, depending on the country in question.

3)      Identification Data Checked

The inputted data will then be checked across the database that you’ve connected through via API. Depending on the data inputted, the check will be for either KYC or KYB. Cedar Rose holds a database of over 160 million individuals and over 12 million companies; this data is instantly checked through eIDV.

4)      Instant Verification Results

The final step of the identity verification process is the result that is returned. If the inputted data was found in the database, then it is a ‘match’, and therefore you have verified the legitimacy of the individual or company. However, if it is a ‘no match’, then the individual or company has not been verified. The eIDV service returns one of these two results, for accuracy and speed. The user would then be able to proceed or not, depending on the result.

Cedar Rose – Electronic Identity Verification

Cedar Rose has been compiling data for over 23 years, from the hardest of regions, such as the Middle East where, in some cases, data is not even digitalised yet at the official sources. We have collected and cleaned this data and presented it in a standardised, easy to use and easy to access database for our clients. We offer vast data on individuals in the Middle East, Romania and Russia and data on companies across the MENA region. We source our data from a variety of places such as: official records, local records, public records and credit rating agencies.  Our databases are easily accessed via our API and are suited for international clientele, scalability, and for instant results. If you have a large influx of entities to be verified, our scalable database can handle your requests. We offer a service that can provide a smooth, efficient and most importantly compliant on-boarding process. If you’d like to know more about how we can help, contact Hannah.king@cedar-rose.com or check out https://www.cedar-rose.com/solutions/eidv for more information.

 

Written By Jack Evangelides, Marketing Executive

 

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*** The sole purpose of the article above is to generate public discussion, it has no intention to constitute legal advice. ***

GDPR – What have we learnt and what more can we expect?

GDPR

There is no question that when the General Data Protection Regulation (GDPR) was enforced by the European Commission (EC) on the 25th May 2019 it shook up the corporate world. Consumers are becoming more aware of the handling of their private and personal data and more and more businesses are being held accountable for private data misuse. GDPR is, perhaps, the most elaborate and corporate-defining, set of regulations that the business world has experienced in the 21st century. As the world continues its journey within the digital world, a technological age, regulations such as GDPR are starting to parallel basic human rights, akin to rights such as Freedom of Speech. Our data-driven world requires more understanding and precautions over our personal data and GDPR, for just over a year now, has been enforcing just that. It is important to deliberate and acknowledge how far GDPR has already taken us and what lies ahead.

Understandings & Reflections of GDPR
The unsurprising initial ‘noise’ of GDPR is starting to quiet down as we move to a more implicit understanding and a greater acknowledgment of the regulation. But what have the outcomes of GDPR been in this last year?

1. Black & White Understanding
If we have learnt anything from GDPR since its enforcement, it is that it provides clarity over who serves it, who it applies to, what enforces it and penalties for incompliance. Business has undergone a major data-driven transformation in the last decade and now, with the help of GDPR, consumers can now begin to understand their rights over their own private and personal data. Data-privacy is becoming an ingrained concept, a right, into our everyday lives, bolstered by the amount of data that consumers interact with, whether it is on social media, buying insurance or practically anything you do in your day-to-day activities. In the last year there have been over 95,000 complaints issued by consumers in relation to GDPR incompliance which highlights that the everyday consumer is becoming more aware and educated to their individual rights of data-privacy and data-control.

2. GDPR’s Muscle Flex
Although GDPR is something that goes on in the background, its repercussions can be disastrous for both small companies and large. The impacts of incompliance aren’t limited to fines, but you may also receive financial sanctions, and, perhaps the most effective drawback, reputational damages. As consumers become more aware of the rights concerning data-privacy, they are less likely to get into business with companies that carry a poor reputation for looking after client data. The EC have pushed fines to companies amounting to €20 million or 4% of global revenue – whichever figure is higher. Moreover, some of the most notorious financial penalties have recently been handed out to some of the biggest companies in the world, such as Google in January 2019. Google were fined a hefty amount of €50 million by the French National Data Protection Committee, GDPR has proved to the corporate world that no one, no matter how big, is excused from complying with the regulation. The fact that no company can hide from the effects of the General Data Protection Regulation enhances the fact that data-privacy is becoming and has become a norm in society, a core value of human rights and an overall protection of private data.

Where is GDPR heading to next?
GDPR punishes all incompliance and leaves no one to spare. Is it rampaging on to become a tyrant or will the regulation quit while it’s ahead? The good news is that GDPR is out to protect consumers and will hold all accountable for incompliance, naming and shaming as it goes along. The future of the regulation will show it maintaining its current state, providing fines, financial statements and the ever-so disastrous reputational damages that it bears. However, for companies, this means that there will be more of these repercussions until the safety of consumer data can be assured. Our data-driven world will attempt to engrave GDPR into it as natural law, a natural right of each individual and the effects for incompliance are as big as the statement it holds. The European Commission has set a solid precedent in their iron fist approach against incompliant organisations in hope to breed a corporate society of greater legitimacy and trustworthiness. GDPR is trying to create a better future for businesses and consumers to act upon, for consumers to healthily put their trust, their data, into legit and compliant companies.

Pro-GDPR
Cedar Rose is pro-GDPR and since its enforcement in May 2018, we have stayed on top of the necessary policies and regulations to ensure we conduct business legitimately. Companies and consumers have trusted us with their data for over 20 years; we acknowledge them and owe them their privacy in any way possible. We have our Data Protection Officer (DPO) who keeps up with the current affairs of GDPR and makes sure that our company complies with what is necessary. We want to create a friendly and inviting opportunity for our consumers to take part in, a company you can trust with your more sensitive data. We understand the importance of GDPR and wholeheartedly comply with the regulations. We are the go-to data-driven company for the Middle East and North Africa.

But like all companies, we can’t just sit back and say we’ve checked all the boxes, it’s so important to stay abreast of new rules and regulations around business, data and privacy, so do watch out for the proposed EU ePrivacy Regulations possibly coming soon…

See some of our other articles such as ‘Corruption: Steps to Prevention & Avoid Potentially Harmful Risks‘ 

Written By Jack Evangelides, Marketing Assistant

*** The sole purpose of the article above is to generate public discussion, it has no intention to constitute legal advice. ***