Financial services firms are pulling together data from silos to create a holistic view of their clients, having been emboldened by new technological capabilities and regulatory nudging from rules like the general data protection regulation (GDPR), says Steve Elliot, managing director of LexisNexis Risk Solutions.
“Traditionally, firms have done a bit of onboarding, done a bit of work on customer servicing, and a little bit on payments. What they’re doing is building knowledge about the customer or client in multiple points across the firm and across multiple products. When these areas don’t talk to one another, these firms get quite a diluted view of who the customer really is.
“Something that is happening now is a lot of firms joining up that information. That’s being driven by a couple of things. The first is technological capability and the second is GDPR, as it has forced firms to get better control when it comes to the governance of their data. I think firms for a long time have wanted to bring their data together to have a single view of the customer. I don’t think there has been a strong drive to do it, I think GDPR compelled them to do it and technology now enables them to do it.
“The more difficult parts are around the transference and use of that data. For firms, organizations, and countries to become increasingly effective at fighting money laundering, financial crime, and avoiding sanctions they need to share more data.”
In September 2018, European Central Bank (ECB) board member Benoît Cœuré told a Vienne news conference the regulator would support “any initiative” which might lead to a “harmonized and coordinated approach to anti-money laundering (AML)”. European Commission (EC) vice president Valdis Dombrovkis told the FT money laundering scandals across Europe suggested stronger structural controls could be necessary.
Major European banks Danske Bank and Deutsche Bank have experienced damaging anti-money laundering scandals in recent times. The Danish bank saw 10 former employees detained by Estonian authorities, while Deutsche Bank had its head offices raided by German police in connection to revelations from the Panama papers.
Yet the creation of a pan-European overseer for AML isn’t entirely necessary, says Elliot. “There are certainly many advantages to having common regulatory standards, because then you can you can understand the environment through which you can transfer data. That doesn't necessarily need to be the EU, and you don't necessarily need to be in the EU to comply with those standards.”
Changes in risk
An area in which an holistic data view can aid firms is in anti-money laundering (AML), says Elliot. “If you look at money laundering controls the markets relied have on basic KYC. You'll be familiar with if you're going to take out a credit card or open a bank account, you just need to use a copy of a utility bill.
“That is becoming increasingly dated, electronic solutions are now capable of solving that problem far faster than the old ways of doing it. I think if you have any set of measures, and the fraudsters, the people that want to breach those measures, know what those measures are they then of course, they can go away and be creative and find a way around them.”
According to Elliot, money laundering activity is moving away from the creation of fake identities and towards the acquisition of real ones. “Now for money launderers to be successful they have to get into the system and it’s much easier to do that with a genuine identity. With any system, criminals will try to find a way around it. If they know what those rules and regulations are, it gives them a start point, but it gets much more difficult point for them to get around it if you're sharing the data.”
LexisNexis Risk Solutions performed a survey of firms in the UK earlier this month. “When we’ve been speaking to them, and when we’ve been looking at the results, most of them are saying that they feel as though the financial services sector is fairly well regulation. 73% are saying its well-regulated relative to other parts of the market. I think that’s where the vulnerabilities are, the other parts of the market, the non-financial services firms.
“Technology is changing, data is changing, people are changing. Firms are at risk of becoming complacent. If they don't adapt to some of those changes, then they will have risks and challenges as a result of other firms adapting quicker than they do.”