How the UK is making the fight against financial crime more connected than ever
Although the UK’s pursuit of becoming a fintech hub and financial services powerhouse has made it a force to be reckoned with on the world stage, in doing so, it has made itself a larger target for criminal exploitation.
The UK government is preparing a new bill to fight financial crime
The Economic Crime and Corporate Transparency Bill is the latest development in the UK government’s ongoing march against financial crime and money laundering. The bill, which is now entering its final passages within parliament, is poised to revolutionise how businesses, and particularly financial institutions, can strike criminal activity at its core.
The bill is to arrive off the back of the Economic Crime, Transparency and Enforcement Act, which the government instated in 2022 in the wake of the Russia-Ukraine war.
The act strengthened the government’s powers to impose sanctions and investigate illicit activity, namely in the creation of an overseas entity register for UK properties owned by foreign criminals, and in the reformation of the Unexplained Wealth Order.
The measures sought to contain and eliminate one of the system’s biggest weaknesses: the contagion of financial crime. One of the most favourable methods to cheat the system is through using a web of falsified corporate accounts interlinked between different institutions and third-party companies to clean dirty money.
Countering contagion
“The biggest threat within money laundering is corporate entities,” Adam McLaughlin tells FinTech Futures, describing how criminals hide in the fluctuations typical of these types of accounts.
McLaughlin currently serves as director, global head of financial crime strategy and AML SME at Nice Actimize, a vendor of financial crime, risk and compliance solutions headquartered in New Jersey, US. Prior to this, he held notable positions at JP Morgan Chase, as AML compliance officer, and as a detective sergeant for the City of London police.
He says that it’s this weakness in contagion that the UK government is striking again within its incoming Economic Crime and Corporate Transparency Bill.
Given that over 100 of the world’s top global financial institutions rely on Nice Actimize’s solutions to fight crime effectively, McLaughlin has been following the progression of the bill and its anticipated impact with a naturally close eye.
“On paper, at least, it is quite revolutionary in terms of what they’re hoping to achieve with this bill,” he comments, adding that the bill ultimately consists of “three core pillars”.
Inside the bill
The first of these pillars promotes transparency by encouraging data sharing. Although there is current legislation in place with gateways to facilitate private-to-private data sharing in the context of fighting financial crime, its stature remains subjective.
McLaughlin explains how this subjectiveness becomes problematic as it goes against the “very risk averse” interpretation of cautious financial institution legal teams. However, should it pass, the bill would introduce new measures whereby private-to-private data sharing won’t be penalised if done to fight financial crime.
The bill is taking the ability to share information one step further with the creation of a third-party utility, a secure-access Cifas-like space for businesses to distribute and receive information concerning suspected cases of fraud.
The new bill could pave the way for “the biggest change to Companies House since it was created in 1844”
For McLaughlin, this second pillar “completely changes the game” for information sharing, and he anticipates it having a considerable impact on the ability of businesses to identify an oncoming threat. “I think it’ll create a clear gateway for them to share information,” he says.
The third and perhaps the most highly anticipated pillar of the bill is the Companies House reform. Both existing and new entrants to the registrar will now be required to verify their identity, in conjunction with giving new powers to the registrar enabling it to check, remove or decline information submitted to it.
In the spirit of the bill at large, Companies House will also now be able to share evidence of fraudulent behaviour or anomalous filings with law enforcement efforts, helping to clamp down on fraudulent corporate entities.
The bill also indicates a willingness to keep pace with “the latest advancements in digital technology”, in that Companies House will now strive to present “more reliable, complete and accurate” financial information.
McLaughlin describes these amendments as “extremely encouraging” and “the biggest change to Companies House since it was created in 1844”.
“If this bill goes through, which I think it looks like it will do, then any director, person in control, or anyone associated with the company have to be validated by ID documents ultimately to Companies House to verify who they say they are, which is a huge shift from what exists today.”
These three core pillars are joined by additional amendments allowing law enforcement agencies to more effectively take control of and recover cryptoassets in cases of money laundering and fraud, and reforms to limited partnership registrations and transparency.
Data exchange: a new revelation?
Although it heavily promotes the sharing and application of private-to-private data, the measures outlined in the bill aren’t entirely unfamiliar. In some way, this type of data exchange has been happening in the industry for many years, even at the risk of non-compliance.
Taavi Tamkivi, the CEO and founder of regtech Salv, developed the company’s Bridge platform to enhance collaboration between banks and fintechs, thereby improving combating money laundering, fraud and sanctions. On a broader note about the industry, Tamkivi observes that “at some level, data sharing has always been happening” in a “mostly legal” capacity.
“In private discussions, many people from the banks have been exchanging data with each other when it comes to crime information, even if they’re not convinced that it’s fully compliant,” Tamkivi explains.
“People are doing it, putting their career at risk, because they want to save the world and want to reduce crime, even if it’s not fully compliant with the likes of GDPR. So, in that regard, it has been always happening in a limited manner.”
In this light, one of the major advantages of the advent of the bill is that it creates a clear and undeniably legal means for banks and financial institutions to share data effectively.
Furthermore, it firmly recognises how criminals exploit the interconnectedness of the UK’s financial ecosystem, sharing relevant data with each other to advance their criminal activities.
The key to data standardisation
Data exchange is therefore integral to fighting fire with fire, and the UK government appears to be pulling out all the stops to facilitate such an exchange effectively. Yet despite its promises of a newly created entity in which to distribute and share such knowledge, the bill has yet to irradicate one of the industry’s primary barriers in data interpretation.
The standardisation of data exchanged from one entity to another is chief among the catalysts of executing this bill effectively. If, for example, a smaller entity lacked the ability to interpret data in the same way as a larger, more established entity, then its ability to put that data into practice would ultimately be limited.
As a renowned data scientist, Tamkivi likens this necessity for data standardisation to the formation of the railroads or the rise of mobile networks, all of which needed to be perfectly aligned in order to be successfully adopted by the consumer.
He identifies three core pillars in the progression of data standardisation: the structure of the data that’s commonly accepted; the minimum requirements for technical and security protocols; and the widespread adoption of legally supported document-drive procedures.
It could be argued that this legality has been met in the formation of the bill, and perhaps elements of data security and structure might appear on the government’s long-term agenda before too long.
As for the present moment, the bill completed its third reading in the House of Lords on 4 July, with additional amendments due to be considered by parliament on 4 September. Should it be ratified into law, it seems the bill could be set to come into force either later this year or at the beginning of 2024.
