Banks must do more to stop financial crime, says deVere
News of the recent FinCEN (Financial Crimes Enforcement Network) has resulted in a from Nigel Green, CEO and Founder of deVere Group.
The evidence itself, a cache of 2,100 suspicious activities reports (SARs), indicates that some of the world’s largest banking institutions were involved in Ponzi schemes, financing criminal organisations, money laundering and more.
These revelations have prompted deVere, one of the foremost financial consultancies in operation, to declare that banks should “tone down the rhetoric” and instead focus on developing workable solutions for increasing the industry’s legitimacy.
“These documents show how some of the world’s biggest banks have seemingly turned a blind eye to criminals moving dirty money around the world through their systems,” stated Green.
“While banks must, evidently, do much more in this area, it is also important to make clear the distinctions between legal and illegal financial practices. A failure to do so muddies the waters and makes combating financial crimes harder.”
Increasing accountability in banking
So far, the response of the concerned parties has been limited; FinCEN offered a at the beginning of September, while from the BBC indicated that implicated parties believed they acted with propriety by filing SARs in the first instance.
However, as the BBC article states, it is not sufficient to file a SAR and then continue to receive suspected ‘dirty money’. This suggests a fundamental cultural realignment is required, as Green declared.
The Brookings Institution recommends the following:
- Better funding and more allocated resources to FinCEN.
- Increased automation of the SAR process for FinCEN and its globally-connected counterparts.
- Added incentives for banks in order to drive compliance and improve the quality of information provided.
- The US as a whole must create a more inhospitable environment for laundered money.
Summarising his impression of the FinCEN leaks, Green says, “For me, this highlights once again that these major financial institutions need to do much more and with vigour to help prevent high-level financial crime, which is a serious global problem.
“Let’s tone down the rhetoric and focus on the serious issues of stamping out financial crime by implementing more robust checks and balances inside the banking system.”
Zafin: Banking is now in the era of the tech ecosystem
The development of tech ecosystems is placing the future of post-COVID banking in jeopardy. At a time when Big Tech can replicate the functions of traditional financial institutions, what can banks do to retain a grip on the market?
John Smith, EVP Ecosystem at Zafin, has a few ideas. A SaaS cloud-native product and pricing platform for financial institutions, Zafin is preparing the next generation of banks to cope with this precise challenge.
Smith is responsible for the strategic and tactical management of the company’s ecosystem, including the creation of new business models to support growth and differentiation. We asked him four questions:
Q. Have the events of the pandemic caused an irreversible shift in the digitalisation of banks? If so, is COVID the sole cause or are there other factors?
It’s a great question and one that I am asked a lot. Without a doubt, the COVID-19 pandemic has driven a significant shift in the acceleration of digital. In fact, I’ve seen some estimates show there to have been as much as four to six years of digital adoption growth since the initial lockdown started.
While the pandemic may be the primary reason for this growth, two other drivers include fintech disruption and the high costs of operating a traditional retail bank. Both of these factors have caught the attention of banking executives as they set their minds on accelerating digital transformation with a focus on high return, low risk.
Q. Some commentators believe banks must learn from Big Tech in order to survive. Do you agree? Please expand.
I agree completely; we’re living in the era of the ‘ecosystem’. All the seismic shifts we’re seeing in technology, be it aggregation, embedded finance, DeFi or hyper-personalisation are all enabled by the foundation of an ecosystem.
When financial institutions work with a strategic partner like Zafin, which has made the strategic investments in a best-in-class ecosystem, they’re able to capitalise on opportunities more quickly and safely, and will be better positioned for growth now and at the other side of the pandemic.
Q. What are currently the obstacles to adopting Open Banking? Is it more likely to 'take off' in some regions rather than others?
I would argue that Open Banking has been in the US for some time and will only continue to grow there. By definition, Open Banking is about the secure sharing of financial information that customers are aware of and have authorised. Under that definition, we’re seeing aspects of this well underway even though its full potential remains to be seen.
Third-Party Providers are a natural outcome of Open Banking, whereby they can create propositions beyond what a bank normally does to enable banking functions such as payments, borrowing, saving and so on. Once again, some of these are already present through industry-led initiatives, whereas regions such as the EU have taken the pathway of regulation such as PSD2.
The industry-led initiatives we’ve seen in the US have also had the added advantage of guard-rails that regulatory bodies like FFIEC and CFPB provide. There are also other technology-led initiatives such as API definitions that are set out through the FS-ISAC.
I would argue the future of Open Banking in North America will be through the natural evolution of the guidelines and API definitions that have been published, as well as the natural progression of industry initiatives.
Q. Are there any other bank tech trends you'd like to discuss?
Coreless banking. Zafin has been pioneering some of the work around externalising functions out of the legacy core to drive a more ‘fintech nimble’ bank, while not having to deliver a ‘heart and lungs’ core bank replacement.
Real life examples of this include moving some of the core functions of a banking system, such as product and pricing to a platform like Zafin. Origination, onboarding, KYC, risk, and compliance are all other examples of externalising banking functions for added agility.