On the tenth of September, the UK Financial Conduct Authority (FCA) published their Annual Report and Accounts for the year ended 31 March 2020. This report outlines the challenges, changes, and priorities for the regulator over those 12 months. It also highlights how the FCA will “continue to transform their own organisation” in the months to come.
Team Jade ThirdEye has had a look at the key elements of the report to see what it means for us, our customers, and how we can keep helping firms transform their approach so they can meet their AML/CFT compliance requirements efficiently.
According to the report, the FCA currently has 65 AML investigations underway and they’ve already handed out millions of pounds in fines. They’ve enhanced their core AML supervision modules and developed a proof of concept for new tools to test how robust a firm's system is at detecting financial crime effectively. The FCA has also increased the number of AML enforcement investigations, conducted more reviews, and started five enforcement investigations to address failings in financial crime systems and controls.
The cost of ensuring compliance can be high. The level of scrutiny, risk of reputational damage, and financial impact for financial entities that don’t have strong systems and controls in place is very real. And it's likely to increase. You can ease the pressure of compliance with wise investment in automation and technology. This can help you reduce cost and increase assurance that you’ll meet your regulatory obligations. In fact, the FCA report acknowledges that technology can reduce the cost of compliance for firms. You can also achieve this by putting reliable, repeatable processes in place. This, together with smart technology, will enable your team to spend less time on manual compliance tasks and more time on higher value activities.
Of course, to lower the cost of compliance, you need to select technology that returns the right value for money and solves your most urgent problems. So the main takeaway from the FCA report for Jade ThirdEye customers and other firms is to remember how critical it is to evaluate vendors and technical solutions against your specific risks. You also need to consider potential areas of unintended cost or friction.
As one Jade ThirdEye customer who recently switched from an older, outdated system put it: “We needed a system that gave us enhanced control and lowered our total cost without causing disruption to our business.” This customer began their robust tender process by identifying the issues they faced with their existing technology. When they established that it was causing them undue risk and cost, they worked back to find technology that was a good fit for their business. If your firm is currently reviewing regulatory technology solutions, this is a great approach take.
This is another key topic in the report that applies to AML/CFT. The COVID-19 pandemic has definitively highlighted the value of the work firms and the industry have placed on operational resilience. Interim Chief Executive of the FCA, Christopher Woolards, comments that “the vast majority of firms adapted quickly to the overnight move to home working … made possible by the focus we—along with industry—have placed on operational resilience for a number of years.”
Jade ThirdEye customers backed this up in a recent survey, commenting that Jade ThirdEye was one of the technologies that enabled them to transition seamlessly to working from home. One of our newest customers even embarked on a completely remote implementation with us! As a vendor, we know how important it is that the technology you rely on is resilient and we remain highly committed to product security, availability, and business continuity.
In future, the FCA will keep emphasizing the value of operational resilience. They’ve said they “want to see a resilient financial system that’s better able to supply important services during disruptions and can also recover effectively.” This is especially important for smaller firms who might have fewer resources. For entities that rely on Jade ThirdEye and other technology vendors, this is a good time to question whether the AML/CFT tools and workflows you have in place are enhancing your operational resilience. Consider how you can work with your vendors to maximize the value of your operational tools and technology.
If you’re a smaller firm, you'll need to balance your technology requirements and your ability to implement and manage these. You’ll need to choose a system that fosters resilience and efficiency, and one that does this with minimal IT and management overhead.
The FCA report also highlights the risks associated with dependence on third parties and a small number of providers for specific services. If you’re evaluating technology to increase your operational resilience, consider a review of the Operational Resilience Consultation Paper and make sure you’re working with a provider that has a strong track record of transparency and reliability.
To be compliant, firms need a healthy governance and culture. Part of the challenge with compliance is simply the time it takes to meet regulatory requirements, which puts stress on your staff as they struggle to fulfil expectations. One important way you can foster a culture of compliance in your organization is to invest in technology that makes it easier for compliance teams to do their job and frees them from manual tasks so they can focus on more critical issues.
Throughout the report there's a strong focus on customers and consumers, and it's clear that new opportunities are arising from changes in consumer behaviour and expectations as well as technology. It's also clear that these changes have potential to negatively affect some consumers, competition, and the fight against financial crime. Investing in dedicated technology to improve your AML/CFT programme is a great way to free up resources so you can focus on other areas of your business, like building better customer experiences. If your AML/CFT technology choice carries additional efficiencies for IT and management—through characteristics like cloud-hosted SaaS business models and full-featured support packages—people and teams in your organization will have even more time and opportunity to invest in digital transformation and tools to support consumers and remain competitive.
And last but not least, it's important that vendors—like Jade ThirdEye—and financial firms continually monitor technology trends and developments. For example, the report covers Digital Regulatory Reporting (DRR), which, according to the FCA could “fundamentally transform how the industry understands, interprets, and reports regulatory information.” You can rest easy knowing that we're keeping an eye on industry updates like this to better understand the possible benefits and ways forward.
We recommend you take some time to read through and digest the FCA report. We think it’s especially important in the current climate. It can help guide customers and the vendors supporting them with what to focus on in the next 12 months and ease the pressure of compliance.