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Your destination for the latest news and insights in the world of RegTech, Business KYC, compliance and more

Written by Jackie Whiting
on July 29, 2022

In many industries, summertime brings upon a natural slow down of important action as committees take their breaks, team members enjoy some holidays and project milestones are deferred to later in the fall. However, when it comes to RegTech and especially, AML, the train never stops chugging along. 

At kompany, we’ve been busy building new country integrations, preparing for exciting new changes at the German Handelsregister (read our monthly digest for more details) and adding a few can’t miss events to our calendars through the second half of the year. 

In case you missed it, earlier this month the Financial Action Task Force hosted a webinar on the money laundering and terrorist financing risks arising from migrant smuggling. You can watch the conversation on FATF’s YouTube channel and also learn a bit more about what state authorities, private sector and NPOs can do in order to fight these illegal operations while also ensuring legal ways of migration for those who seek better opportunities in life. 

We also encourage you to download your free copy of "Leveraging RegTech in Financial Crime Compliance Programmes". This report, jointly assembled by the FinTech Innovation Network and Beyond, offers expertise on selecting the right RegTech partner for even the most complex anti-financial crime needs. Moody's Analytics own James Penn and Chor Teh contributed to the report, sharing “the good, the bad and the ugly when it comes to choosing, integrating and changing their RegTech solutions within an existing programme.” Download your copy now. 

Now, let’s get on to the news! 

Hundreds of crypto firms fail FCA money laundering test - Pressled 

Crypto firms are in the midst of a deep winter at the moment, and nowhere is that more true than in the United Kingdom. 

Since the introduction of the Fifth Anti-Money Laundering Directive which brought crypto service providers under the rules that required certain additional checks on customers, the Financial Conduct Authority received a flood of applications from crypto firms hoping to operate in the UK. However, it’s been reported that over the past two years, only 13% of the firms that applied for authorisation under the FCA’s money laundering rules have been successful. 

Some common reasons for rejections include applications “not providing enough information” or because they simply do not meet the standards, though the majority are often withdrawn by the candidates themselves. 

“Firms can request to withdraw their applications at any time during the registration process. Common reasons for doing so include not meeting the requirements of the regulations, or understanding that registration is likely to be refused,” this is according to the FCA response to the Freedom of Information Request by compliance consultancy Bovill. 

It’s been said that the crypto industry is currently battling with the regulator, who is keen to establish more protections for real investors that are vulnerable due to the high-risk nature of the products.

The government plans to bring stablecoins into its regulatory overview but still needs to provide details on what the plans will be for the wider crypto asset market. One thing is for sure though, additional legislation is needed in order for the FCA to regulate the market beyond its existing oversight via anti-money laundering rules. 

TI Calls for Stronger Anti-Corruption Efforts in the Pacific - OCCRP 

Transparency International, a global organization with the mission to “end the injustice of corruption”, recently sent an open letter to Pacific Island leaders calling for stronger measures to combat corruption in the region. 

According to the Organized Crime and Corruption Reporting Project (OCCRP), the “young democracies scattered across the Pacific remain one of the most under-studied regions when it comes to corruption.” Despite this, more than three in five people across the region believe corruption to be a major problem in their government.

Exact forms of corruption were mentioned in a 2021 report and were said to include, “high levels of bribery, sextortion, and vote-buying. Additionally, business contracts with the government were seen as a hotspot for corruption”

The OOCRP believes that higher levels of corruption may be a result of the fact that many of the countries and territories achieved independence a relatively short while ago, meaning their governance structures and political institutions are still young and unstable at times. Speaking out against corruption can also be especially risky for everyday citizens, with very few countries having implemented whistle-blower protection laws. Additional reports from this year have also concluded that most countries in the region lacked the policies and resources to address anti-money laundering efficiently and effectively.

However, the open letter from Transparency International also highlighted that 60% of respondents from a recent survey believed that civilians can help fight corruption and that 70% of their governments were “doing a good job in doing so”. They are therefore urging leaders in the Pacific to leverage this optimism in the months and years ahead.

The letter makes some specific suggestions which include: ​​

  • include strengthening accountability of political leaders 
  • empowering police and courts to investigate and prosecute corruption
  • eradicating bribery in public services
  • ensuring free and fair elections by empowering electoral commissions
  • introducing and enforcing right to information and whistle-blower protection laws

Banks Start Using Information-Sharing Tools to Detect Financial Crime - WSJ

As reported by the Wall Street Journal, compliance staff at financial institutions often struggle to spot and stop illicit transactions due in large part to criminals funneling their dirty money from one institution to the next, effectively covering their tracks and leaving staff with “only a partial road map of their actions”. 

But FIs and service providers in different countries around the world have begun creating “information-sharing platforms and messaging tools with the potential to vastly improve the detection of money laundering and fraud.”

A recent research project from a British think tank has identified a minimum of 15 information sharing initiatives, from countries including the US, UK, the Netherlands and Estonia. The types and uses of the platforms highlighted in the aforementioned study vary significantly between jurisdictions, with some focusing on specific problems (e.g. money mules) or enabling secure messaging to participating banks.

The United States was one of the first countries to offer financial institutions a legal getaway for sharing info about their customers in order to better identify money laundering or terrorist financing activity. However, the use of information-sharing is voluntary and has been slow when it comes to widespread adoption across the country. 

That being said, according to the study, “a more formal association of five of the largest U.S. banks has also produced some interesting results” which has enabled “participating banks to pool investigative resources, generating thousands of new subjects of potential interest to law enforcement.” 

It’s been said by some that the main obstacles to more effective AML procedures as a result of information sharing tools comes to pre-existing legal frameworks. Nick Maxwell, the head of the Future of Financial Intelligence Sharing project has gone on record to say, “Technology is not the issue…It’s really about whether the country has a clear policy environment to support sharing, which is rare.”

That's it for this month! But before you go…

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