This throwaway tweet by a Reuters reporter gets to the core of the challenge of tackling financial crime. Given the sheer volume of transactions worldwide — SWIFT alone accounts for over 33 million transactions per day — identifying, isolating and understanding those that might be linked to criminal activity without the aid of technology, is simply not humanly possible.
And yet that new customer or deal that a firm hasn’t properly vetted today could lead to negative headlines, heavy fines or sanctions, possibly many years in the future. From a societal perspective, even more is at stake: those transactions could belong to perpetrators or enablers of large-scale corruption or fraud, or to networks actively working to undermine democratic institutions.
The good news is that one of the (other) ways we may remember 2020 is as a landmark year in accelerating the use of technology to tackle financial crime.
In October, the G20 received a dedicated report from the Financial Stability Board (FSB) on the use of supervisory technology (Suptech) and regulatory technology (Regtech). Also in October 2020, the World Bank published a roadmap for Suptech implementation for low-income countries.
Taken together, these and other high-level signals indicate an undeniable shift in intent from global policymakers, which will increasingly translate into national-level action. The Covid-19 pandemic has only reinforced the urgency of deploying technology to tackle financial crime, with some of the primary supervisory tools such as in person on-site inspections of financial institutions having to be dramatically limited.
As Suptech initiatives multiply in coming years, here are three milestones to look out for:
1. Large-scale Suptech impact assessments
The Suptech case studies available to date tend to be focused on narrow use cases or on the launches of new initiatives. For example, the FSB report lists examples of forward-looking or recent Suptech strategies, various technology Hubs and Labs, and the application of specific technologies such as machine learning, cloud computing, APIs, and network analytics.
As those expand and develop, watch out for the first comprehensive backward-looking assessments of those Suptech strategies, initiatives and technologies. In addition to signposting growing maturity in the field, these assessments should also provide lessons for more jurisdictions to adjust or adopt their own strategies.
2. Regtech/Suptech data standardisation initiatives go global
A critical barrier that is preventing the effective use of technology in detecting financial crime is the wide variety of regulatory data formats. As a result, a financial crime puzzle can be spread across banks and countries, each holding different pieces, often without realising what they are looking at or how they fit together.
While several standardisation initiatives are underway, and progress has been made in some areas such as Legal Entity Identifiers, none is yet broad or deep enough to ensure smoother data-sharing at scale. In 2020 the FSB called for international collaboration towards common data standards for regulatory areas. A second breakthrough moment will come when a major global policy body heeds that call and convenes a long-term data standardisation initiative.
3. Inspections get a makeover
Right now supervisory inspections are usually split between “on-site” — a team visits the bank in person to look at a sample of files and documents, and can also interview staff and management — and “off-site” — a desk review of data collected from the bank.
At least two technology trends have the potential to transform inspections. First, initiatives to promote the ongoing sharing of financial intelligence between the private and public sectors continue to expand, including in major financial centres. Second, demand for “pull” mechanisms through which authorities can access bank data on demand via an API is also growing, a more cost-efficient and targeted approach than banks having to “push” a standardized dataset to authorities at regular intervals.
Keep an eye out for the first national authority announcing a wholesale revamp of its approach to inspections and data-driven oversight, possibly doing away with the distinction between “on-site” and “off-site” altogether.
Elucidate: Suptech as our next frontier
Here at Elucidate, we are already working with major financial institutions to transform the way they deal with financial crime risk. At the core of what we do is providing institutions with the technology and analysis they need to better focus limited resources on areas with dynamic risk.
As the next step in our mission — to rid the Earth of financial crime — we are excited to share that in 2021 we will be extending our platform to support the technology and analysis needs of supervisors and regulators.