Pan European Regulator: Key Weapon In Money Laundering War?

Money Laundering

Among the latest headlines swirling in FinTech: Digital bank Revolut, based in the United Kingdom, has taken on an adviser, along with filling new positions, to bolster compliance teams at the firm. As had been reported in the Financial Times and elsewhere, the firm had been scrutinized in recent weeks by regulators including the Financial Conduct Authority (FCA) and in Lithuania (Revolut has a banking license in that country).

In an interview with PYMNTS conducted over written exchange, Jane Jee, CEO of Kompli-Global and lead for the Emerging Payments Association’s Project Financial Crime Team, said events in the financial services sector (especially with some firms singled out for money laundering) raise several concerns, among them the question of whether the U.K.’s Financial Conduct Authority “is carrying out a thorough check when it grants licenses — and are its monitoring and enforcement priorities appropriate?”

She noted that a late 2018 report by the Financial Action Task Force had expressed concerns that the FCA concentrated too much on larger financial institutions. The task force urged the regulator to take a more risk-based approach, she said, and against that backdrop, Jee maintained that a “reasonable person would see the Revolut business as needing close monitoring by the regulator because it grew so quickly and offered services globally.”

She said regulated financial institutions (FIs) must seek guidance from the authority on managing risk — and may delve into data sources that reveal information on new customers and their existing client bases. The data can help these companies make informed decisions about money laundering and potential fraud risk.

And, as Jee maintained, it is especially important that firms of all sizes have access to comprehensive data. “No single source is adequate and smaller financial institutions could do with access to the same sources as larger financial institutions but at an affordable price,” she said. “In the U.K., we have encouraged competition in financial services, but left smaller financial institutions more vulnerable to fraud and money laundering if they cannot afford the same levels of fraud detection and prevention as larger financial institutions.”

Larger FIs, she said “often see their ability to reduce financial crime as a competitive issue — it should not be. Better information sharing would help smaller FIs,” which at times are the firms most vulnerable to fraud.

Asked about which cases spotlight the need for comprehensive money laundering regulation in the European Union, Jee cited several. For example, when Dutch prosecutors went through ING’s books, they found that “a women’s underwear trader” had laundered the equivalent $168 million through bank accounts. In other examples across Europe, governments have sold visas and real estate agents have sold properties to “shady characters,” she said. In addition, she told PYMNTS that in the U.K., the Serious Fraud Office has stated publicly that businesses often escape sanction when it has proven difficult or impossible to establish corporate criminal liability.

There exists, then, a real need for a pan-European regulator focused on money laundering concerns. The most serious reason for such a wide-ranging effort is the “lack of consistency across Europe — which means a company can choose to be regulated in the country with the weakest checks and enforcement in place.

In the case of the Danske Bank scandal, she said, “It was clear that the Danish and Estonian regulators each thought the other was responsible, so neither acted in time.” She said that with Brexit still (at this writing) looming, it also makes sense to make sure that the U.K. also is part of a pan-Europe anti-money laundering (AML) regime.

A pan-European regulator would set guidance and enforcement rules and would be able to “prevent regulatory arbitrage,” said Jee. And, she added, a regulator would have oversight too of lawyers and accountants.

In terms of technology, she said, machine learning and natural language processing can help companies conduct KYC (know your customer) checks effectively, and regulators need to keep abreast of the technologies that prevent money laundering and recommend their adoption.


New PYMNTS Report: Preventing Financial Crimes Playbook – July 2020 

Call it the great tug-of-war. Fraudsters are teaming up to form elaborate rings that work in sync to launch account takeovers. Chris Tremont, EVP at Radius Bank, tells PYMNTS that financial institutions (FIs) can beat such highly organized fraudsters at their own game. In the July 2020 Preventing Financial Crimes Playbook, Tremont lays out how.