Proactive approach key to avoid scandal


By Sarah Kendell

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Financial services organisations need to get proactive about compliance in all aspects of their business in order to avoid future scandals and further public scrutiny, according to the Regtech Association.

Julian Fenwick, chair of the industry body which was established earlier this year, said while banks had had the technology available to them to combat internal misconduct for many years, a lack of budget allocated to compliance was fostering a reactive approach that was seeing systemic issues continue to slip through the cracks.

“Looking at these issues it tends to be that people assign budget to something once there has been a problem or once they see a problem at someone else’s house – for instance NAB (National Australia Bank) has recently put aside a contingent liability for potential costs to strengthen their AML program, so you wonder if the Commonwealth Bank issue was an impetus to put that money aside,” he said.

“We are still looking backwards and trying to fix these problems as we become aware of them rather than being proactive and starting to fix up future issues. A lot of what we talk about in the new wave of regtech is about compliance by design, embedding compliance into day-to-day processes so that the issues that are there today aren’t even possible.”

Fenwick said following the misuse of Commonwealth Bank intelligent deposit machines making headlines this year, financial crime was likely to feature heavily on the compliance agenda in 2018, with financial institutions employing more sophisticated detection technology to proactively monitor potential breaches of anti-money laundering laws.

“We need to get past the academic compliance view of financial crime and understand the actual outcomes, what it is doing to human society, how we can tackle it and where technology will be able to enhance that,” he said.

“We are starting to see technology that is able to identify people by their voice, and that can be used in a reactive sense by analysing conversations between traders to understand the meaning of certain words, but you can also flip that into a proactive sense.

“We will start to see flagging of certain conversations in email and chat rooms that will then raise red flags before something has happened.”

However Fenwick also flagged there could be more retrospective scandals afoot, particularly if banks were mandated to release all consumer data as part of the forthcoming open banking regime.

“Part of the issue with opening up bank data is the potential for retrospective regulatory action on problems that nobody knew existed and some banks have come out and said they are happy to talk about open data as long as there is a line drawn in the sand,” he said.

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