Financial crime resilience

Financial crime resilience

Financial crime resilience

Financial crime resilience

Suveer Khanna | Partner,

Co-authored by Abhishek Jhunjhunwala and Sachin Shah

With heightened vulnerability and fears around COVID-19 coupled with the fact that financial institutions are operating in a strained environment during lockdown phase across multiple geographies, the ‘new normal’ will be a way of life. There is an increasing threat of financial crime by organised crime syndicates directed against consumers, institutions and governments at large. In the last three months, we have seen the threat evolve into certain unfortunate events.

Facing the uncertainty and threats requires a sharp focus on compliance and operational risk, people and business continuity plans while aiming to fight the increasing menace of financial crime due to new pandemic typologies.  Financial institutions need to prepare for tackling new type of criminal transactions and fraudulent activities.

Some of the key emerging risks in the current environment relate to fraudulent schemes to mis-utilise government welfare, market abuse, organised fraudulent schemes, employee misconduct, bribery and corruption and sanction breaches amongst others.

In order to enhance the financial crime compliance framework, organisations should focus on the following key areas with some critical measures for immediate (up to 3 months) and long term (6 – 12 months) perspective that may be evaluated for implementation. 

Focus area

Immediate measures

Long-term considerations

Re-focus on the risk-based approach and revisit financial crime risk assessments

  • Re-evaluate financial crime vulnerabilities
  • ·  Assess incremental enhanced due-diligence requirements
  • Review trade transactions considering changes in sanctions dispensation
  • Conduct awareness sessions within the organisation and with external stakeholders.
  • Assess ‘new normal’ and develop mechanism to manage on-going AML/KYC programmes
  • Re-calibrate AML risk rating matrix and related due diligence mechanism
  • Managing ‘conduct risk’ to mitigate consumer detriment risks
  • Re-assess investigation protocols to manage financial crime violations
  • Assess strategy to manage regulatory guidance and reporting protocols.

Focus on understanding new typologies leveraged by criminals under COVID-19 crisis and calibrating monitoring and surveillance scenarios

  • Recalibrate the existing financial crime typologies to manage increasing threats due to sudden influx of fraud schemes
  • Assess risks from politically exposed persons and increase in bribery and corruption risk due to governmental grants to manage the economic hardships
  • Empower financial crime operations team
  • Manage increase in false positives due to changes in transaction patterns
  • Enhance monitoring and surveillance to assess market abuse
  • Conduct evaluation of transactions to manage consumer protection regulations.
  • Monitoring and surveillance to be enhanced to meet influx of prospective candidates for availing governmental financial package and aid
  • Re-evaluate transactions undertaken during current phase post COVID-19 to assess any underlying risks that have not been identified or have been omitted
  • Evaluate inconsistent transaction patterns during COVID-19 period that were not identified previously
  • Ensure that the monitoring and surveillance are in accordance with changing regulatory landscape.

Focus on resource and infrastructure planning to manage growing backlog of alerts due to capacity constraint

  • The current capacity should be used for managing high priority items including due diligence requirements and alerts
  • The organisations should also assess re-skilling of existing workforce
  • Assess impact on theft or loss of privilege customer information and related regulatory fallout.
  • Capacity planning to be optimised and possible support from third party specialist may
  • Reassess business continuity plans for three lines of defence including systems and operational capacity to manage remote working
  • Gear up for potential surge in business operations post COVID-19 term
  • Evaluate financial crime operations business model to assess managed services model to reduce strain on existing workforce as well as provide enhanced skilled workforce.

Develop and enhance technical and analytical capabilities to reduce manual efforts

  • Data analytics predictive and intelligent interventions may allow organisations to re-calibrate their monitoring and surveillance scenarios and identify inconsistent behaviour
  • Appropriate usage of data analytics capabilities along with use of Artificial Intelligence and Machine Learning techniques can help organisations reduce false positives.
  • Assess investing in appropriate technologies such as face detection and anomaly software to assist in client due diligence
  • Develop appropriate technology interface coupled with data analytical capabilities to enhance its detection mechanism
  • Use of technology and data analytics can help firms in maintaining adequate surveillance on marine traffic through Automatic Identification System (AIS) review for any unscheduled stops in ports that have heightened sanctions risk or are in sanctioned countries.

It is critical that financial institutions manage financial crime along with execution of their business as usual activities with an overall aim of minimising impact on customers. By having a continuous focus and oversight on the risk, compliance and business, financial institutions can achieve financial crime resilience.

It is imperative that by embedding the immediate measures, financial institutions and their boards can very well equip their financial crime teams in their effort to enhance their financial crime control and compliance framework in this era of adversity, disruption and uncertainty.

For more industry insights and sectoral perspectives related to COVID-19 frauds and scams, click here