Rise of global financial crime requires ‘more invasive’ scrutiny from banks

The former director of the Financial Analysis Intelligence Unit, Manfred Galdes, has said financial institutions today are dealing with dramatic changes in financial due diligence but are still coping with the new risks, requiring them to go much deeper into their customer profiles.

“The way we look at financial crime risk today has changed mainly because the international standards have changed, the requirement that the Financial Action Task Force on Money Laundering (FATF) has set out for countries and institutions across the globe to comply with are definitely more rigorous than ever before,” Galdes, ARQ risk and compliance director, said.

Worldwide, financial crime is on the rise prompting regulators to enact stricter standards, which in turn have made financial institutions more invasive when processing customer transactions, Galdes said.

 “We are living in a very different world to the one we lived in 10 years ago. If we had to compare the type of customers a bank deals with today and the regulatory compliance that the bank has to implement today with what used to happen a decade ago, we’d realise that the change is quite dramatic,” Galdes said.

HSBC Malta hosted a first-of-its-kind customer event in Malta focused on financial crime risks and associated compliance obligations, which have increased markedly from the past.

The event was opened by the bank’s Chief Executive Officer Andrew Beane, who spoke about the importance of achieving international compliance standards to support Malta’s long term economic growth and reputation in the global economy.

He compared modern-day financial crime compliance requirements to airport security, explaining that security in the financial system is achieved because everybody needs to comply in order to have access.

Malta is expected to be reviewed in 2018 by Moneyval, an independent monitoring body within the Council of Europe that will be evaluating the effectiveness of the country’s systems to combat money laundering and the financing of terrorism.

HSBC’s Europe Financial Crime Compliance Head for Commercial Banking Bharati Chandrashekar said in Malta, where HSBC has a significant market share and is the largest international bank operating in the country, it was “particularly important that we provide customers with a much better understanding of what the requirements are from financial crime risk management perspective.” 

“Banks have an increased responsibility to ensure they bring customers along in this journey so that we can work together and help protect the integrity of the financial system we all depend on,” she added.

The experts said that whilst financial institutions are keen to bring customers along in this new operating environment, businesses can create advantage for themselves by putting in place policies and controls that guard them against bad reputation, third party misdeeds, and risky payments.

“Reaching out to customers is crucial since the knowledge of the customer as to why these checks are carried out is limited. When they are asked probing questions about where they get their money from, and the proceeds of their wealth, people tend to feel uncomfortable. We need to get to a stage where people realise that this is for their benefit and it is the only way in which financial services can be accessed. Eventually, we should get to a stage where being subjected to stringent due diligence becomes the accepted norm,” Galdes said.