the full picture, this week – 20 April 2018
In our weekly roundups, the encompass team take you through all the breaking news on Know Your Customer (KYC), compliance and financial crime, keeping you informed at all times. This week we look at Millennials choosing convenience over privacy, the impending implementation of 5MLD, and the current FinTech and RegTech landscape…
anti-money laundering and financial crime
The recent data breach from Facebook has opened any number of different questions about data protection, privacy rights and how we use data. Now, in Verizon’s 2018 Data Breach Investigations Report, Ian Dyson QPM, Commissioner, City of London Police has raised the claim that young people are too open to forfeiting privacy over convenience, particularly in regards to mobile phone apps. This in turn has given rise to increased levels of fraud, where 70% is “cyber-enabled”. The Commissioner also went on to say that a “security blanket” being inserted around companies could reduce levels of cyber crime. In a separate story in This is Money, MP Conor Burns has been drawing attention to the volume of young people who are allowing criminals to hide funds, or make payments, from their bank accounts. This is a form of money laundering, and comes with strict penalties as well as impacting upon credit ratings.
Michael Harris of LexisNexis Risk Solutions has written in Estate Agent Today on illicit money flows being used to purchase property – particularly in London. Now, a Select Committee is being prepared to examine money laundering and look at further ways of closing down routes to launder money.
The Australian banking system has taken up more than a few paragraphs on these pages in recent weeks, and it has come to the fore again today. The introduction to this article in East Asia Forum sums it up better than we ever could:
“Australia’s banks emerged largely unscathed from the global financial crisis, but have since become enmeshed in a series of allegations of misconduct. These include instances of sales of unsuitable products, non-adherence to responsible lending standards, poor financial advice, attempted manipulation of financial benchmarks as well as non-compliance with anti-money-laundering and ‘know your customer’ requirements.”
The organisation which regulates online gaming in Malta, The Malta Gaming Authority (MGA) has stated that three Maltese online gaming platforms have voluntarily quashed their own licenses following investigations by the Italian police who suspected potential Mafia involvement. Online platforms have become an increasingly popular method for criminals to launder their funds.
Proposals for a 5th Money Laundering Directive (5 MLD) are becoming clearer with both LexisNexis, writing in Bobsguide, and encompass’ Martin Russell examining what we know so far. Regulations around pre-payment cards, digital currencies and high-risk third party states are all likely to be tightened. And the European Commission, just this week, released a statement on 5 MLD, saying:
“We can be proud of the new measures, which will substantially improve the existing rules. We are today marking an important step in fighting against financial crime. But our work is not over. Fighting effectively against financial crime needs proper implementation of these rules and strong coordination amongst the different authorities.”
Transparency International has released a new report stating that the G20 group of nations has not done enough to mandate registers for beneficial ownership. Indeed, the UK is one of the few countries to receive any praise for implementing and making publicly available a register of beneficial ownership. The report states that 11 of the countries have “weak” or “average” legal frameworks. Canada and South Korea come under particular scrutiny within the report for having weak beneficial ownership transparency framework overall. Further reporting can be found in OCCRP.
Sri Lanka has followed the lead of the EU by bringing their money laundering legislation up to speed with their European counterparts. The central bank has announced that it is now obligatory for designated non-finance businesses to conduct customer due diligence in a bid to curb money laundering and terrorist financing activities.
An op-ed in Financial Executives magazine has called for AML screening programmes to be proactive rather than reactive. Deanna Murray writes that regulated firms must take an attacking stance when it comes to money laundering programmes, one that does not just identify risk, but that identifies and resolves it before it becomes problematic.
In a sign that money launderers are becoming ever more devious in finding methods with which to launder their funds, a story in PC Gamer caught our eye. The story centres on French cyber-security expert Jean-Loup Richet, who has been telling the magazine that online games such as World of Warcraft could be utilised by money launderers. Richet says:
“But what I found interesting in highlighting this method of laundering [was that] it was more under the radar because nowadays everyone is talking about bitcoin laundering. There are some places where government officials, like Europol or Interpol are likely to be [monitoring].
In the latest in a long history of corruption scandals implicating officials at football’s international governing body, The Independent report FIFA council member, Constant Omari from Congo, has been arrested on charges of corruption.
FinTech and RegTech
Writing in Finextra, Kunal Patel, has written a solid potted history of the RegTech movement, noting that compliance legislation is now so complex, particularly for financial institutions, that any company that can develop solutions that lower cost should be welcomed.
Colm Gorey in Siliconrepublic has written about the evolution of FinTech, noting that while many FinTech firms were founded to disrupt long-standing industries such as financial services, more often than not, they are now working with, rather than against the big banks. Moreover, a number of financial institutions have created their own in-house accelerator labs, essentially bringing FinTech companies in-house.
However, in a diametrically opposed view, Rachel Wolcott of Thomson Reuters, writing in Complinet has effused that despite the readiness of RegTech and FinTech firms, financial institutions are as yet unwilling to commit to working with smaller players.
Ernst & Young have released their Asian FinTech census of 2018. Within the report they cite strong political support for FinTech, taking advantage of geography, and the need for further investment as key to driving the sector.
Mark Carney, Governor of the Bank of England has called for firms and sectors to prepare themselves for automation so that they may be able to lessen impact upon employees. New technologies could also dampen wages as was seen in the 19th Century, Mr. Carney said. However, as reported in The New York Times, a company in the Czech Republic, after failing to find enough humans to work on their production lines, has turned to robots in order to fulfil their contracts. The NYT report states that in Eastern Europe robots are becoming increasingly common because of the dearth of humans to take up roles.
In further ramping up of hostilities between the UK (and US) and Russia, there have been multiple reports this week of potential Russian cyber-attacks on UK computers, possibly impacting upon public utilities. The Russian government has been reportedly using “man-in-the-middle” attacks to gain critical information. Coverage can be found in Holyrood magazine, The Telegraph, Time magazine and Daily Beast.
The Telegraph has covered good news for UK technology firms. American investors last year poured a record $1.1 billion into UK firms. The volume of investment has gone up 47% with the number of deals also rising from 21 in 2011 to 74 in 2017.
A House of Lords report has called for the need in regulating AI in order to prevent further scandals such as the Facebook / Cambridge Analytica furore. The Guardian reports that the Lords have called for the introduction of five ethical principles which, it says, should be applied across sectors, nationally and internationally:
- artificial intelligence should be developed for the common good and benefit of humanity
- artificial intelligence should operate on principles of intelligibility and fairness
- artificial intelligence should not be used to diminish the data rights or privacy of individuals, families or communities
- all citizens should have the right to be educated to enable them to flourish mentally, emotionally and economically alongside artificial intelligence
- the autonomous power to hurt, destroy or deceive human beings should never be vested in artificial intelligence
Finextra report that two thirds of big banks have already introduced AI solutions, but are failing to harness their capabilities to the full extent. In a survey, 83% of respondents who had embraced AI were unaware of how to use it to solve business problems.
The European Parliament has begun to debate whether robots can be responsible for their actions, and whether to grant them “personhood”. However a letter sent to the European Commission from 156 AI experts representing 14 European countries, including computer scientists, law professors and CEOs, warns that granting robots legal personhood would be “inappropriate” from a “legal and ethical perspective”.
Israeli based LawGeex has raised $12m in Series B funding. The SaaS “company aims to streamline in-house legal contract approval with its cloud-based, AI-powered review tool.”
A group of 34 tech companies have written an open letter in which they pledge not to help nation states wage cyber-war. Signatories to the letter include Microsoft, Facebook and Nokia.
In a modern tech problem, a team of seven Vietnamese tech entrepreneurs raised $660m in an initial coin offering – then disappeared with the money. In what has been termed an “exit scam”, thousands of investors descended on their now empty HQ.
Ripple, the world’s third largest digital currency has called on UK regulators to begin to regulate cryptocurrencies. Ryan Zagone, head of regulatory relations at Ripple, said:
“We’re at that time now where we need more clarity and rules and we need more certainty. It’s a good time to start revisiting that ‘wait and see’ approach taken by regulators.”
The New York attorney general has launched an investigation into trading practices of cryptocurrencies, and has written to thirteen exchanges requesting information. AG, Eric Schneiderman said:
“With cryptocurrency on the rise, consumers in New York and across the country have a right to transparency and accountability when they invest their money. Yet too often, consumers don’t have the basic facts they need to assess the fairness, integrity, and security of these trading platforms.”
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