Reflections from the Australian Financial Crime Summit 2020

Earlier this week, professionals from federal and state governments, banks, superannuation fund managers, FinTechs, RegTechs and more gathered for the 6th annual Australian Financial Crime Summit.

We were delighted to sponsor the event, with Senior Product Marketing Manager Mike Kearney and Business Development Manager Gary Clarke attending and Mike sitting on the panel for ‘The Great Debate: Does Increased Compliance Mean Lower CX and Higher Costs?’

A number of themes emerged from presentations and discussions, with Mike sharing his reflections in this blog…

A time of legislativereform

Presentations from representatives of Federal agencies and regulators described a period of change necessary to modernize defences against threats of financial crime. One proofpoint offered was Australia’s 49th place ranking in the Tax Justice Network’s Financial Secrecy Index for 2020.

Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019 passed both Houses on February 5 2020. APRA recently signalled its intent to consult on revised versions of several regulations including Prudential Standard CPS 220 Risk Management in the second half of 2020.

Dependent on sufficient political support, additional regulatory reforms include:

Crimes Legislation Amendment (Combating Corporate Crime) Bill 2019;
Currency (Restrictions on the Use of Cash) Bill 2019;
Anti-Money Laundering and Counter-Terrorism Financing and Other Legislation Amendment Bill 2019 (commonly referred to as Tranche 2 AML/CTF).

Regulators advised institutions to commit appropriate resources to AML/CTF programmes.

Innovating to strengthen the defences

Leading institutions are both partnering with RegTechs and deploying innovative techniques and technologies to strengthen their defences against financial crime.

Examples discussed at the Summit include the secure management and sharing of information using such distributed ledgers as blockchain and R3 Corda, and the deployment of link analysis, record linking and entity resolution using machine learning techniques. One tangible result of these innovations is progress to near real-time detection of threats allowing institutions to respond at speeds which nullify or limit criminal activity.

Defences are also strengthened by the inflow of talented professionals from overseas to local institutions. It was noticeable that professionals with recent experience of working in London have moved to Australia.

Agility confers advantages and dispaces risks

Institutions capable of responding with agility to newly emerging patterns of criminal activity and evolving regulations put themselves at great advantage. By moving quickly, they reduce potential for financial loss and reputational damage.

When they make the necessary adjustments to their compliance regimes at lower cost than their peers they free capital that can be directed to growth opportunities. By disrupting illegal activity they make the work of criminals more difficult and more expensive.

Criminals deterred by strong defences will look for easier targets. To illustrate, superannuation fund managers are being tested by criminal activity at increasing volumes and of greater sophistication. This is leading to closer cooperation across the sector. A possible future outcome may be organising to allow resource sharing of the innovative technologies already proving their value at the largest institutions.

The imperative to accelerate KYC

In his final interview with Karen Dillon, his coauthor and a former editor of Harvard Business Review, Clayton M. Christensen reminds us:

Disruptive innovation describes a process by which a product or service powered by a technology enabler initially takes root in simple applications at the low end of a market – typically by being less expensive and more accessible – and then relentlessly moves upmarket, eventually displacing established competitors.

Armed with full banking licences, Australian neo-banks are now accepting customers. Limiting their business to customers rated as low risk means these FinTechs can quickly complete simplified KYC using a digital straight through process. Should these market entrants succeed, incumbents may be left with a book of predominantly higher risk customers. Established banks will likely respond to the threat of disruption by implementing digital KYC operating models.

The 6th Financial Crime Summit proved a lively forum for the exchange of experiences and ideas. We would like to congratulate and offer our thanks to all who contributed, and to IQPC for organising the event.

Author: Mike Kearney

As a product marketing professional, Mike specialises in technologies that deliver business innovation by managing, analysing and presenting information. Mike’s career spans working in Australia, Europe and USA with experience in financial services, telecommunications, energy, pharmaceuticals, electronics and public sector, and with vendors including Netezza, Oracle, Vignette, BMC Software, and IBM.