The financial sector cannot just rely on rule-making by regulators to stop criminals, warned the Financial Conduct Authority's (FCA) chief executive Andrew Bailey.
Speaking at the Financial Crime Conference held yesterday, Bailey (pictured) said that increased technological innovation in financial services has become somewhat of a double-edged sword.
‘A reliance on rule-making by regulators, and therefore the prescription of what cannot be done, can be ill-suited in a world where criminals are able to move very rapidly supported by new technology,’ he said.
‘Easier access to financial systems, markets and institutions benefits society without doubt, but also provides opportunities for criminals. But it can also provide more capability to identify and prevent financial crime risks. The issue then is whether we have or can have the systems in place to fight against such crime. Can we keep up?’
The financial services sector not being able to keep up was also at the centre of Nausicaa Delfas’, director of specialist supervision at the FCA, speech on Thursday.
‘We are conscious that some AML [anti-money laundering] practices have not evolved much over time,’ said Delfas.
‘In particular, basic customer due diligence checks undertaken by many firms are much as they were 20 years ago – paper-based when the rest of the world has moved to the 21st century.’
She pointed to the FCA’s Innovation Hub and Sandbox initiatives as ways the regulator is trying to help firms develop technologies that can help make compliance processes slicker, more efficient and more effective.
Meanwhile, Rob Gruppetta, the head of the FCA's financial crime department, believes that there is a ‘stop it at any cost’ mentality especially when it comes to crimes like terrorism or money laundering linked to drug trafficking, but warns against unintended consequences such as rising costs.
He said: ‘Anti-money laundering measures across the UK economy cost billions of pounds a year. I know the BBA [British Banker’s association] has estimated its members collectively spend £5 billion each year on financial crime compliance.’
However, he added even without the money laundering regime, firms would want to know who they are doing business with to protect themselves. He also said a good portion of the cost is just the price of doing business.
‘But £5bn is nonetheless a huge figure. It is, for example, about half the size of the entire UK agricultural industry. It is the same size as the economy of Brighton and Hove,’ Gruppetta pointed out.
In her closing remarks at the conference, Delfas said the FCA wanted to work with firms to achieve the ‘best regime possible’ and highlighted the need to embrace new technologies.
Gruppetta added: 'We have spoken to businesses with sophisticated new transaction monitoring technologies and with ideas for fostering new ways for firms to share information. And I am keen on supporting businesses that come to the FCA’s Project Innovate scheme with new ways of addressing financial crime risks.'