Bridging the AML apathy gap

The financial services industry continues to experience a higher level of fraud than any other sector. The value of UK reported fraud in this sector has risen 138% from £238m in 2014 to £567m in 2015 according to the BDO FraudTrack Report 2016. Third party fraud, mortgage fraud and money laundering in the financial sector all showed increases in value year on year.

The numbers are slightly skewed by a couple of individual large amounts, but the picture is still clear – and concerning. “Our experience would suggest that both volume and value in real terms continue to rise despite efforts by companies in the sector to strengthen their processes” says the report’s author Kaley Crossthwaite, Partner and Head of Fraud at BDO LLP.

The UK’s financial services industry could do without these figures. There’s no denying it’s had a rollercoaster ride: over the past decade much has been done to rebuild the sector’s operations and reputation, with new legislation aiming to clean up the industry, to improve transparency and to transform its modus operandi. Following the UK’s vote to leave the European Union the real impact on the financial sector remains to be seen, but industry commentators agree on one thing: the UK must not lose its lead in taking a strong stance against economic crime. 

The financial sector isn’t the only industry to be affected by economic crime, of course. It can, and does, impact all organisations, across all industries. In the retail sector, for example, the value of fraud has grown from £30.7m in 2014 to £48.1m in 2015, according to BDO figures. New Customer Due Diligence (CDD) rules in the European Fourth Directive bring down the threshold for which high value transactions need investigating, from €15,000 to €10,000. The knock-on impact of this is likely to mean that the number of reported fraud instances in the retail is likely to increase next year, as more transactions are investigated.

The concern for all industries is that despite robust regulation, increasing penalties for non-compliance and companies’ work to improve processes and systems, instances of fraud are still growing in frequency and in value.

Recent research may have revealed an explanation behind this gap – and the good news is that new regulation should go some way to address it. PwC have found that, despite the increase in economic crime, there is a worrying level of apathy across some firms. Its research reveals that although more than a third of businesses have experienced economic crime in the past two years, one in five businesses had not carried out a single fraud assessment in the last two years, and one in ten economic crimes are uncovered by chance. Firms can’t afford to leave economic crime, and its discovery, to chance: the risks are far too high and the impact potentially catastrophic on an organisation’s reputation, performance and future.

 Now, the risks are even higher: measures proposed in the UK government’s Criminal Finances bill will make it a corporate offence to fail to prevent money laundering inside a business, and they will be subject to legal proceedings – not only regulatory penalties. Organisations across all sectors need to be absolutely transparent about their fraud prevention.

To bridge this gap and to minimise risk, firms need to take a closer look at who they’re doing business with. They need to take a forensic look at their organisations, to be vigilant in understanding individuals and their assets. And they need measures, software, systems and processes in place, so they can understand and draw insight from complex relationships and connections within their clients’ data.

For the financial sector specifically, the measures proposed in the Criminal Finances Bill represent a chance to demonstrate more than transparency, compliance and best practice. They provide the chance to regain trust and faith in the industry, to drive down risk and to stamp out corruption.