How to create a digital blueprint for tackling Covid-era financial crime

It has been two years since Covid-19 struck and today, certain aspects of the pandemic-defined world are emerging as a daily reality that will remain in place even after restrictions are lifted, presenting a new normality of sorts.

One of these is the remote working trend. As the pandemic accelerates the digitisation of the global economy, companies across numerous sectors are incorporating remote working and digital business approaches into their long-term business models independently of Covid-19.

As the chief executive of financial crime technology platform Themis, I am all too conscious of the risks that this trend can create. However, if approached wisely and proactively, digitisation can offer powerful opportunities for fighting and mitigating a range of financial crime threats.

Remote working presents unique risks from a financial crime perspective — it can be challenging to properly check and understand who you are doing business with when onboarding new clients or suppliers online and monitoring digital transactions.

Working from home, for example, has made it easier for criminals to bypass customer due diligence (CDD) and know-your-customer (KYC) measures by exploiting weaknesses in internal controls.

Patchy CDD and KYC practices leave businesses vulnerable to fraud and cyber crime, which have both increased during the pandemic.

Indeed, more than 40 per cent of respondents to our recent survey said they had been personally exposed to some form of financial crime over the past 12 months.

Additionally, companies lacking proper digitised data sharing capabilities have struggled with intelligence sharing and compliance with regulatory requirements in online business environments.

The UAE is an example of a country that has embraced remote working while actively executing digitised measures to fight the forms of financial crime that may arise as unintended consequences of remote work.

The UAE is leading the way in terms of tackling new digital threats presented by Covid-19. It is one of the world’s most digitally connected countries with an internet penetration rate of 99.15 per cent in 2019. A recent study found that UAE workers are the world’s best equipped for remote working.

During the pandemic, the country also further cemented its role as a leader in digital innovation by supercharging its FinTech and regulatory technology (RegTech) industries.

The UAE government has invested substantially in financial technology adoption, especially due diligence and KYC practices.

One of the first actions undertaken by the UAE Executive Office to Combat Money Laundering and Terrorist Financing after its inauguration was to adopt a set of technical counter financial crime tools, signalling the country’s commitment to proactive digital approaches.

Moreover, the UAE Financial Intelligence Unit (FIU) launched its goAML platform in partnership with the UN Office on Drugs and Crime in 2019, making it the first country in the GCC to put into effect the reporting platform, which enables the receipt, analysis and dissemination of suspicious transactions and activity reports to UAE law enforcement authorities.

All financial institutions and supervised non-financial businesses are required to report suspicious transactions and activities through the FIU’s goAML platform.

The UAE has also made effective use of its IEMS platform as a communication centre for the FIU, the UAE Central Bank, law enforcement and private sector institutions.

Challenges always arise with the introduction of new digital regulatory systems, such as ensuring their effective uptake by the private sector.

To do so, businesses must have sufficient technical ability and awareness to make the most of digital systems and tools. With this in mind, public authorities such as the UAE’s FIU have actively engaged the private sector to help them to meet their technical implementation obligations.

Digitised KYC technology and identity and verification checks can be especially beneficial for small and medium businesses, which may lack the due diligence infrastructures of larger institutions.

Governments that embrace the digitisation of KYC practices can help to support smaller businesses that are already struggling to recover from Covid-19.

A lack of attention to KYC can not only lead to compliance issues and potential fines, but also present considerable reputational and financial risk to businesses, especially as companies attempt to navigate Covid and post-Covid environments.

I see CDD and KYC as central to fighting financial crime — they give us the ammunition to navigate risks posed by the people and entities we deal with and to make smart decisions regarding our most important clients and business relationships.

Good financial crime risk management should be an enabler of good business. The UAE is leading the way in enabling smart, online approaches to financial crime risk management in the region and its array of new technology-powered initiatives provide much inspiration to digital anti-financial crime champions globally.

Dickon Johnstone is the chief executive of Themis

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