In the ever-evolving landscape of financial crime prevention, technology has emerged as a critical battleground. The Financial Conduct Authority (FCA) of the United Kingdom, halfway through its three-year financial crime prevention strategy, recently released an update highlighting its focus on leveraging technology to combat fraud, money laundering, and sanctions evasion. Published on February 8th, the report titled "Reducing and Preventing Financial Crime" offers valuable insights into the regulator's priorities for the upcoming year, particularly emphasizing the use and oversight of technology.
The update reflects positively on the progress made over the last 18 months, emphasizing the prioritization of tackling fraud, money laundering, and sanctions evasion. Notably, there has been a significant emphasis on anti-fraud controls, resulting in reduced losses in certain areas due to increased controls and regulatory focus.
One notable aspect is the FCA's intensified scrutiny of the authorizations gateway, particularly in high-risk sectors such as payments and cryptocurrencies. With a staggering 88% of authorization applications refused in these sectors, it underscores the regulator's commitment to mitigating risks associated with emerging financial technologies.
Furthermore, the report highlights a recent focus on sanctions controls, particularly in fine-tuning sanctions name screening systems. Through visits to 90 firms and the utilization of a new toolkit to test screening systems' efficacy in identifying specific names and misspellings, the FCA aims to strengthen regulatory oversight in this critical area.
Looking ahead to the next 18 months, the FCA's priorities centre around four key areas: data and technology, consumer awareness, collaboration, and measuring effectiveness.
1. Data and Technology: The FCA stresses the importance of firms staying abreast of evolving crime typologies and risks associated with new technologies. Boards are encouraged to assess their firm's readiness in addressing financial crime risks through investments in technology and data. This includes ensuring that third-party technology aligns with the firm's risk profile and is calibrated to address potential vulnerabilities identified in risk assessments.
2. Consumer Awareness: Increasing consumer awareness is identified as a crucial factor in reducing the harms of financial crime. Firms are urged to educate customers about relevant fraud risks and ensure consistency in messaging with public bodies or industry associations. Measuring the effectiveness of awareness campaigns becomes paramount, with suggestions to monitor metrics such as password change frequency to gauge behavioural changes.
3. Measuring Effectiveness: The FCA encourages firms to develop metrics to measure their effectiveness in preventing financial crime. Boards are advised to assess outcomes, work programs, metrics, and budgets in comparison to peers, ensuring alignment with the firm's objectives in tackling financial crime.
4. Collaboration: Collaboration across the value chain is emphasized as a means to reduce fraud and financial crime. Firms are encouraged to explore opportunities for safe data sharing, particularly through anti-fraud services and other collaborative platforms.
Focus for 2024:
In the year ahead, the FCA will maintain its focus on reducing the harms caused by fraud while also reviewing the anti-money laundering (AML) supervision regime. Expectations include continued robust intervention in high-risk areas and heightened scrutiny of firms' efforts in protecting customers from fraud.
The FCA's update underscores the pivotal role of technology in combating financial crime. As the regulatory landscape evolves, firms must remain proactive in leveraging technology, enhancing consumer awareness, fostering collaboration, and measuring effectiveness to stay ahead of emerging threats in the financial crime landscape.
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