Fighting Financial Crime Together

In his latest blog post, CEO, Tom Walsh, explores how the UK’s plan to prioritize partnership and innovation is pointing the way in how to fight financial crime.

Friends,

I want to start by saying ‘thank you’ to those of you who provided feedback to my first post a week or so ago. The goal is to create a discussion among those of us focused on fighting financial crime and your suggestions and ideas are super helpful.

For those of you who didn’t read the post, I shared some thoughts on my recent travels in East Asia, especially how financial institutions and regulators there are embracing technological innovation, particularly artificial intelligence technology, to fight economic crime. I see this as part of a broader global trend, and one I have heard a lot about during by visits to the ACAMS European Conference in Berlin in June, and the recent launch of the FinTech FinCrime Exchange (FFE) in Singapore in July. The people we work closely with – clients, partners and prospects – are talking more and more about how to make their fight against crime more effective, rather than just ‘checking a box’ to keep regulators happy. A speaker at ACAMS had a good quote – “…it’s like running a restaurant to pass the health inspection rather than creating a great restaurant…”. Never more true than now in our industry and brands from every segment grapple with the impacts of reputational risk and understanding that they are as significant as regulatory risk. More and more, customers view themselves as a cohort and they seek to mix with the “right” cohorts.

It’s clear to me that public agencies are understanding and prioritizing this too. In July, I reviewed the UK’s new ‘Economic Crime Plan,’ which is focusing not only on innovation and technology, but the need for partnerships across and between sectors. I think this is a critical point, because to fight financial crime effectively, you need to be part of a community.

Regulators are ready for the exciting ride that machine learning promises; they just don’t want to end up thrown out of the carriage along the way.

The UK Plan

The UK has been a leader in ‘whole of society’ policy approaches: getting the whole of government, along with businesses and communities, to pull together. They have used it against Islamist terrorism and cyber-attacks, with some success, and they are now doing the same with the fight against financial crime. According to the most recent announcements, the plan is going to include:

  • More money for the UK’s National Economic Crime Centre, to co-ordinate across the government and private sector;
  • A joint public-private strategy;
  • Bank investment of £6.5 billion in the reform of Suspicious Activity Reporting (often called Suspicious Transaction Reporting in other countries); and
  • A positive regulatory approach to technological innovation.

Minding the Gaps

Obviously, it’s early days, but there is a lot to like about this kind of strategy. One vulnerability of the current set of Anti-Money Laundering (AML) requirements is that they are institutional and bilateral. Every financial institution initiates its own effort to meet the AML guidelines, and talks separately to national regulators and government financial intelligence units about the risks. This allows the bad guys to bounce between private institutions and play one off against the other: bank against bank, government agency against business. There are lots of gaps and cracks for the criminals to play in. If everyone is talking more to each other, the bad actors begin to find themselves outnumbered. The other key point is that the plan takes technology seriously. The plan makes it clear that both the private and public sectors can leverage the potential of machine learning to find potential financial potential crime, but this needs to be done with care.

Technology and Innovation

A key theme in the UK plan is encouraging technological innovation, a call which echoes the US Treasury’s statement in support of AML innovation in December last year. New data-driven techniques like machine learning are proving much better at identifying anomalies in client profiles and behaviour than the old rules-based systems and are starting to move the needle in the right way.

The new challenge, though, is explaining how the flexible – but often complicated – algorithms that run the new systems get their answers. Regulators want to know how platforms and systems work (the technical term being ‘model validation’), so they can be confident that the system is getting a reliable answer, on a repeatable basis. Recall the “done with care” theme.

With some forms of machine learning, that’s proving difficult, leaving some new provider attempts as impenetrable ‘black boxes’. Our view is that technology partners have a responsibility to make what we do as clear as possible, we must be able to sit alongside our customers with their regulators and provide the insights and confidence needed to demonstrate this next generation of efficient and effective risk screening is “done with care”.

We are convinced that being part of a wider community is essential to fighting crime…as the saying goes, ‘it takes a network to beat a network.

For us at RDC, that means taking a judicious and staged approach to the application of machine learning. Machine learning need not be a ‘black box’, and we are taking a supervised and transparent approach that builds off our accumulated experience of what has been nearly twenty years of delivery.

This is the foundation for where we go with artificial intelligence, and what we’re hearing from our clients is that it’s a touchpoint of real trust that helps when talking to regulators. Regulators are ready for the exciting ride that machine learning promises; they just don’t want to end up thrown out of the carriage along the way.

Partnerships

The UK Plan also called out the need for better public-private partnerships and I feel strongly that the private sector should not sit back and wait for things to happen. Our energy must be part of the change we want to see. So we're convinced that being part of a wider community is essential to fighting crime, and is why we have been investing time and resources into our support for the FinTech community, through the FFE in Europe, North America and Asia, through our Customer Advisory Boards, Customer Development Panels, and more. As the saying goes, ‘it takes a network to beat a network.’ We all need to know what risks we’re facing and start sharing new ideas for how to tackle problems

The industry also needs to start developing shared voices if governments and regulators are going to be able to engage sensibly with the kind of agendas for change we seek. Who does any government currently call if they want to hear the views of ‘the private sector’ on where to go next in fighting financial crime?

Get in Touch

So, as ever, I remain optimistic about the direction of travel in this global fight against financial crime, and I am proud of the role we at RDC are playing. Our responsibility is to deploy new technology in a sensitive way to make sure our clients can find the bad actors, without becoming a bad actor to their regulators. And we want to play our role in nurturing the kinds of partnerships that governments such as the UK are now promoting. I think these are the right ways to make the fight more effective, reducing both the risks, and the costs, to our clients all the while detecting and disrupting the efforts of bad actors.

If you’d like to discuss any of the issues I have written about here, be sure to reach out to me at tom.walsh@rdc.com.

Until next time,

Tom