ML/TF space, what's in store for 2022...

First of all, best wishes and a healthy and happy new year 2022!

Looking back at 2021, it was a roller coaster ride in the ML/TF space with emerging threats during the COVID pandemic, crypto currencies coming out as more prominent means of laundering and most important, several regulatory fines on FI's. There is a lot which may happen this year so it's important we are well prepared before its' too late!

Regulatory expectations

One of the key aspect to watch out for in 2022 is the emphasis on fundamentals. Yes, we as an industry want to move towards fancy and exciting technologies to limit our problems (most important - dependence on humans - something I completely disagree with!), but regulators (in their deep dive) are checking the fundamentals. While assessing regulatory fines for our platform, Alexis, we noticed same/similar exposures identified at Natwest, HSBC , ABN AMRO in 2021 or as recently as few days back on Southern Cross SICAV plc in Malta. This emphasis on fundamentals is reconfirmed by a recent speculation on UAE ( apparently they may be placed on FATF grey list). Being one of the prominent FinTech Hubs, you would expect Dubai and the FI space in Dubai to be far advanced. Somehow this does not seem to be enough as the news suggests.

Threats to watch out for!

COVID is still among us and so are the criminals who are still active in selling fake medical products or businesses misusing the COVID relief funds. If you have been following our updates or newsletters, you would have noticed a fair percentage of reported cases are COVID related. This year won't be any different. I see COVID as an opportunity/eye opener where we got exposed to the smart methodologies criminals execute. Today it's COVID but tomorrow it could be any other similar disaster. We need to start working on structural solutions, rather than come up with knee-jerk reaction.

Trust me, it’s just a matter of time when another “panama/pandora/…” kind of leak will confront us in 2022. Corporate structures are not only complex, but many a times designed to avoid taxes. Big law firms help them to do so. If a corporate/UBO did not feature in one list, they would definitely pop-up in another. I can bet in the remediation exercise you may have performed less than 10% would have been reported - it is what it is. However this does not take away the fact that criminal money uses such channels extensively. Going back to the fundamentals, rather than waiting for another “leak”, it’s time to put in place a structural solution where you can be pro-active and give confidence to your senior management.

Coming to one of the hot topics of 2021 - crypto currencies. We ran a poll last month and an overwhelming majority believes cryptocurrencies will be the latest threat in the upcoming period.

As much as block-chain technology is helping in bringing clarity + transparency, including reliability + speed, it’s usage (in the form of crypto currencies) by criminals is concerning. I wrote a couple of articles highlighting their risks (this and this) and how banks can prepare themselves. If crypto currencies were not enough, NFT's (Non Fungible Tokens) are another virtual asset in the art space which will surprise you! As much as NFT's are a boost for creatives and game developers (a cryptopunk pieces sold for over $7 million), criminals will find their way to wash their dirty laundry too!

On one hand crypto world is very exciting, with lots of possibilities in solving real world problems, but on the other hand it’s equally used by criminals because it provides just enough anonymity to hide the identities of parties holding the assets. We noticed a significant increase in convictions related to crypto-currencies in different countries. This will soon make into the deep dives from the regulators as banks/FI’s are still the entry/exit points for crypto transactions. If the gatekeepers are not vigilant, this space can go out of hand.

Connecting the dots…

If you have been following Regxsa and the updates we publish, you know by now that our primary ambition is breaking silos among Financial Institutions/Banks and bring the investigation community together. Just imagine, all the challenges I have listed earlier (and much more…) are dealt with by FI’s in their own way, using their own in-house or vendor specific solutions. If your take a large FI, one investigator may simply check exposure of a customer to Panama paper whereas another investigator may just check the UBO and country of incorporation, missing the exposure to Panama/Pandora papers etc. Such kind of inconsistency within the same FI (and at a larger scale across FIs) is only helping the criminals. This is where our platform will bring consistency in investigation practices where everyone has the same tools and insights. Together we make investigation efficient, better and a lot more easier!

Looking back at 2021, it was an exciting year for us at Regxsa. Alexis was taking shape and we developed the platform and incorporated exposures from several regulatory fines. One thing we have noticed is that FI’s are still putting a lot of emphasis on KYC/CDD processes (you can read my views on it here) and in many cases Transaction Monitoring is still “work in progress”. Alexis is far ahead of the game and can help investigators in their current day to day job from day one. In 2022 we will make an impact by raising the bar of our connected FI’s , taking them several steps ahead of the criminals, while exceeding regulatory expectations!

In a bigger scheme of things, whether you are an investigator, representing senior management or SME assisting on technology side of things, be aware of what 2022 and beyond has in store for you. You have to do a balancing act between two extremes - on one hand you have smart criminals who will find any and every loophole your FI has and on the other hand regulators will demand robust foundation (checking the basics)! As long as you are true to the core objective - fighting criminals - you are on the right path. Just be aware not to be carried away by unnecessary/burdensome good to have activities which in the long run may not turn out to be so good after all.