In this issue of our quarterly newsletter, we will be taking you to aspects of financial crime that – to date – have been considered by industry experts and regulators alike to be somewhat ‘beyond the mainstream’.
We all know-how, for example, regulatory scrutiny of the global systemic banks and expectations of the financial services industry from an anti-money laundering and counter-terrorist financing perspective has increased substantially over the past decade. The reports of ineffective, legacy financial crime controls, inadequate governance and management information (MI) – and, above all, regulatory penalties – has been at the forefront of our collective attention for some time now.
And this focus will no doubt continue for many years to come. Regulators and jurisdictions continue to prioritise relatively scarce resources on supervising the largest financial institutions. This trend continues in our work in the field. From the largest high street banks to major wholesale players, regulatory challenges have not gone away – they have only evolved. The events of the past year have led many in the industry to seek operational stability and manage change programmes to adapt to the unpredictability and convergence of traditional financial crime with cybercrime and other threats. It is a test for us all to pass, for the regulator to navigate, and for firms to respond strategically and proactively. Unlike in previous crises, the industry’s largest firms are positioned for a quicker bounce-back and regulators are selecting their enforcement priorities accordingly.
But what do these developments mean for firms that previously attracted perhaps less regulatory scrutiny – often under the banner of ‘innovation’? Here, we are talking about activities that have taken off over the past year or remained under the radar whilst regulators identified major deficiencies amongst the larger players in financial services. Industries like gaming and betting, cryptocurrencies and art markets – the three areas we dive into in this issue – are on the surface completely different but share the common challenge of reputational damage and regulatory scrutiny brought on by the problem of financial crime.
To be clear, we do recognise that these sectors are heterogenous and have peculiarities and unique features. They are regulated differently, they have different participants and they certainly have a different clientele. When it comes to financial crime, they are even exploited in different ways and by different actors. Smurf accounts and money mules are a major risk to online, platform-based gaming and betting companies whereas anonymous shell companies purchasing an item with no direct information on the ultimate beneficial owner is a problem more often encountered in the art world. Cryptocurrencies, for all of their benefits, are at an inflection point between becoming globally accepted, mainstream assets, which means facing greater scrutiny, and restricted to the purview of the criminals and their enablers that have exploited it so frequently to date.
And this is what makes each area interesting. Different schemes, different exposures, different regulatory approaches underpinned by a convergence around greater regulatory activity. We are delighted to share our latest insights on each area.