Blockchain Intelligence Group at 1LoD’s Financial Crime Summit

Blockchain Intelligence Group sponsored 1LoD’s Financial Crime Summit 2022 in London this September. The Financial Crime Summit is an annual gathering of high-level executives and practitioners from leading financial institutions working to prevent financial crime.

The event’s agenda focuses on improving financial crime prevention, the Know Your Customer (KYC), Customer Due Diligence (CDD), and Enhanced Due Diligence (EDD) processes, sanction screening and advances in technology that simplify and achieve compliance.

Compliance with the regulations lowers the probability that financial institutions would be subject to fines, penalties, litigation, or complete business closure.

This event brought to light three primary concerns that banks have regarding the current state of compliance and the rate of financial crime, all of which will be discussed further in the following paragraphs. Working together to find solutions to these problems is the most effective way for banks and regulators to guarantee compliance with regulations.

The summit’s findings about banks, anti-money laundering (AML) and financial crime prevention are available in 1LoD’s report.

     1. High Cost of Compliance

Banks thought that the existing strategy, which consists of merely complying with the regulatory requirements to avoid enforcement, is becoming untenable due to its high cost and little return. 

According to the report, the cost of compliance for more than 1,000 financial institutions worldwide in 2021 is estimated at approximately $214 billion. This also matches the projection in the Global True Cost of Compliance report by LexisNexis Risk Solutions. This is approximately a 19% increase from $180 billion in 2020. 

Notably, the United Nations estimates that the amount of money that is laundered every year might be as high as $2 trillion. Through their existing detection and prevention measures, banks are only able to stop a small portion of that sum from being stolen.

48 percent of the participants thought that compliance with the requirements of the regulators is unaffordable. 17% of respondents deemed it impossible to meet these requirements in the first place.

In spite of the fact that ever-tightening rules have contributed little toward curbing financial crime, they burdened banks all the same. When asked what was most worrying them about staying in compliance with laws against financial crime, 36% polled the ever-growing complexity and burden of regulations.

This goes in line with the insights of Global Digital Finance (GDF) on the top crypto industry concerns.

“For the third year running, our annual members survey cites “lack of regulatory clarity” as a top challenge for the industry. Against a heightened increase for crypto policy and regulation already in 2022, we call on policymakers and agencies to further engage with the industry through the GDF co-regulation model,” says Lawrence Wintermeyer, executive co-chair of Global Digital Finance (GDF). 

Learn more in our previous article about the biggest crypto compliance challenges.

     2. Ineffectiveness of Regulatory Systems

On a different note, banks expressed a pressing need to reform both the regulatory and legislative systems. Instead, it was suggested to lean more toward a risk-based approach to prevent financial crime, considering the effectiveness of the current approaches.

Compliance officers expressed that they feel pressured into ensuring compliance to avoid enforcement instead of focusing on the risk, which has not proven very effective.

In a survey among leading banks, 81% believed that current programs are more concentrated on complying with the requirements of the regulators than expanding their crime prevention capabilities. 

Apparently, HSBC’s $85 million fine incident struck fear into other financial institutions. 

In December 2021, British authorities called out flaws in the AML procedures and automated transaction monitoring of HSBC, which resulted in the bank being fined a total of $85 million.

Banks want to focus on preventing actual financial crimes rather than only the potential 

infractions of legislation and consequential enforcement actions.

     3. Call for Cross-Border Coordination

Banks sought a call to action from policymakers and law enforcement to force financial players to deepen their engagement with the industry worldwide.

In 2022, we saw a heightened emphasis on policy and regulation, especially for the crypto and digital assets industry, including the ongoing need for adherence to KYC/AML/counter terrorist-financing (CFT) regimes for stablecoins, decentralized finance, non-fungible tokens (NFTs) and cryptocurrencies.

The current financial crime prevention success rates are a strong indicator that the industry needs to contribute and come together more than ever.

Over half (44%) of participants identified legislation that would improve cooperation between banks, regulators, and law enforcement as the single most effective way to increase institutions’ efficacy in preventing financial crime.

Regulations are important. They lower the risks that financial institutions are able to take on with the money of their investors as a result of their actions.

On the other hand, according to the findings of the summit, financial institutions are currently facing challenges that need to be addressed by regulators. The business sector will only be able to effectively combat criminal activity by working together and making use of the appropriate resources.

Is your business involved in cryptocurrency transactions? 

Contact us to assess your exposure to financial crime and learn how our tools simplify and help you achieve compliance now.