For over thirty years we have been working with a wide-ranging client base of financial services organisations on a national and international basis. One of the most significant changes we have observed over that period is the developing role and increasing influence of compliance professionals in the finance ecosystem. It has become increasingly clear that the potential risks to financial organisations cannot be viewed as limited in terms of extent or duration. Accordingly, compliance is no longer viewed as a temporary set of reactive responses to regulatory pressures that will fade or to ad hoc failures of internal systems that can be fixed. Rather it is now viewed, increasingly if not always willingly, as an integral and essential component of a governance infrastructure without which no finance firm can deliver on its business objectives.
So if you’re a finance compliance professional with appropriate skills and experience gained on a permanent or interim basis, we are keen to seek your approval to help your career move forward.
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At the end of 2017, the Government announced its strategy to fight financial crime in the UK and internationally. In a bid to cement the UK's position as an international financial centre – potentially under threat in the wake of Brexit – Theresa May appointed MP John Penrose as the anti-corruption champion to oversee the new measures. The strategy is intended to strengthen the UK's financial integrity internally, increase cooperation internationally and fight corruption.
To achieve this, there are (several) new sheriffs in town. But what are the new measures, and what do UK companies have to do to ensure they don't fall foul?
The Fifth Anti-Money Laundering Directive (5AMLD)
The 5AMLD, finalised on 19 June 2018, closely follows the 4AMLD, which only came into force in June 2017. This is an EU directive and not a direct part of the Government's strategy, although it supports the goal of combatting money laundering, particularly in regards to terrorist activity.
Fortunately for UK companies, the latest directive is not as extensive as the fourth, which necessitated wholesale changes in the ways businesses approached money laundering.
The Fifth Directive focuses its gaze on cryptocurrencies, prepaid cards, high-value goods (above £10,000) and those dealing with high-risk third countries. It also requires companies to be more transparent with lists of Beneficial Ownership and Politically Exposed Persons. If this applies to your company, you should ensure you're compliant by the deadline in 2020.
Office for Professional Body Anti-Money Laundering Supervision (OPBAS)
To further strengthen the country's Anti-Money Laundering Capabilities, the Government set up the new OPBAS. Based within the FCA, the watchdog is another effort to fight terrorist financing within the UK.
The Economic Secretary to the Treasury, John Glen, said:
'This new watchdog will deepen the government’s partnership with the private sector as we work together to tackle illicit finance whilst minimising the burdens on legitimate businesses. This sends a clear message to criminals and terrorists that their dirty money is not welcome here.'
The Government's goal is to ensure the UK's current 25 anti-money-laundering supervisors meet the standards set out in the Money Laundering Regulations 2017 and has powers to investigate and penalise those who do not. Legitimate businesses will see little change in their day-to-day activities.
National Economic Crime Centre (NECC)
At the head of all these measures, former Home Secretary Amber Rudd announced the creation of the NECC in December 2017. The move also included appointing a new Minister for Economic Crime in the Home Office and staff from across the government and private sector.
The goal for the NECC is to improve intelligence into money laundering, increasing analytical capabilities and better coordinating the response to high-end economic crime, particularly organised crime and terrorism.
Thankfully for companies in the UK, these measures shouldn't mean them having to change the way they work too drastically or spend lots of time implementing new policies or procedures. Instead, providing they work as intended, the strategy should keep them protected from the ill effects of financial crime.
We look at the rise and rise of RegTech companies, all using AI and machine learning to help companies combat financial crime
For Financial Technology companies, business is booming. By definition, FinTechs are small and agile, able to shift rapidly and develop new technologies at pace in order to capitalise on new markets.
They are also a perfect target for financial crime. As fast as they can develop, so too can unscrupulous criminals looking to take advantage of gaps – gaping holes, in some cases – in new systems whose ambition more than often outstrips their regulatory compliance.
Enter RegTechs. These are regulatory technology companies that focus on software solutions to help financial institutions automate and streamline their regulatory activity. And it’s lucrative – the market for RegTechs is estimated to reach $118.7 billion by 2020.
The rapid rise of FinTechs has, in some cases, left cracks that can be exploited by financial crime. Their focus tends towards an excellent customer experience – it’s what sets them apart from the big, traditional banks. Moving quickly to stay ahead of wealthier competitors means there’s pressure to develop new solutions quickly – and the high degree of automation can also leave room for error.
Their strengths in terms of agility may also prove their weakness when it comes to compliance. Unlike the big banks, startups often have small teams who are fighting to keep up with ever expanding regulation. As well as this, they lack the ‘organisational memory’ of big institutions and can struggle to attract and pay experienced heads.
Gap in the market
This is where RegTech comes in. This new breed of technology’s main uses include stress-testing financial forecasting, automating and monitoring regulatory changes, and email and filtering and monitoring. Not always the most glamorous topics, but absolutely vital to the smooth running of financial businesses.
Artificial Intelligence and Machine Learning are at the heart of RegTech software, and are used to analyse and make sense of data at its biggest. The idea is that they are easy to integrate, more reliable, secure and cost-effective, and quick to adapt to regulatory changes and criminal activity. They make it easier for companies to stay compliant.
Regtech companies to keep your eye on
There are new RegTech companies popping up all the time – here are some of the top players. To be fair to the start-ups, it’s not just smaller FinTech companies that are benefitting.
Ayasdi, which uses machine intelligence to solve a variety of regulatory and compliance-related problems including Anti Money Laundering and financial risk modelling, count Citi and Credit Suisse among its clients.
Similarly, in the US, Standard Chartered has appointed Silent Eight to screen customers, using natural language processing matching against watchlists, and learning to carry out assessments as a human would respond.
How to stay one step ahead
Like all new technologies, although they claim to be easy to integrate, in reality it can be more difficult. Proprietary systems will all be different and so custom integrations are often needed – mistakes can be very costly.
Hiring employees who have been through the process before can be beneficial and help solve any problems before they’ve even started.
Although still in its infancy, RegTech is here to stay. Once integrated, the benefits are many. Including helping your compliance teams sleep at night.
The uncertainty brought about by Brexit is driving demand for regulatory roles as companies scramble to protect themselves against future changes.
Brexit looms large over the UK, dominating news and political discourse. It’s no minor issue for its businesses, either. Despite all the talk, there’s only one overriding theme everyone can agree on: uncertainty.
Because no one truly knows what the impact of Brexit will be on, well…anything, it’s very difficult for companies to plan for the long term. This is making many Chairman, CEOs and MDs very nervous. One of the results of this anxiety is an increase in the demand for regulatory related talent.
The certainty of uncertainty
No one (not even those leading the country) really know how Brexit negotiations will end, or what this will mean for British businesses. What is clear, however, is there will be at least some regulatory change. With no reassurances, companies are increasing their skill set when it comes to regulatory and change management teams.
Senior-level hires with expert knowledge of policies and implementation – and in specific verticals – are more valuable than ever. The early movers have given new staff the chance to really get under the skin of their operations and put them in a position of being ready to jump into action once the nightmare becomes reality and the inevitable changes become clear.
No escape from GDPR
Much to everyone’s annoyance, before GDPR came into effect the government confirmed that the ruling will still stand even after Britain leaves the EU. IT/technology specialists with systems knowledge are still in high demand, and their expertise will continue to be precious commodities as businesses look to navigate the latest regulations.
There are still many grey areas in the new laws, and it feels like everyone is waiting for the first big victim to uncover where the lines really lie – a situation no one wants to find themselves in.
The most desirable skills
The perfect storm of Brexit, GDPR and Mifid II is leaving organisations paranoid that competitors will come along and poach their most trusted staff. As well as experts in more general regulatory change scanning and surveillance, many companies are hiring teams of specialists in their particular industry – it’s become too big for one person to handle.
Firms that usually relied on only a small number of compliance staff are having to increase in numbers and compete directly with larger businesses with even bigger budgets.
The reward of risk
Of all parties involved, it’s compliance specialists who come out as winners. Candidates can earn big pay rises if they switch, with some recruiters claiming an average of 24% wage increases for the clients they’ve helped switch. Some are even earning big wage increases by staying put as companies propose large counter-offers to keep hold of their top employees.
Although competition for talent is fierce, it’s only going to get worse. With the Brexit deadline approaching more quickly every day, now is the time to act for companies looking to plan ahead and guard against the change.