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Published: 09 February 2017
Sector: Banking & Financial Services

With the increase in Financial Crime, is your business safeguarded?

Looking back at the 2008 crisis, the Financial Services industry was riddled with scandals that resulted in a failure in the banking system. This was a world when raising concerns over suspicions of crime, was seen as damaging the reputation of the financial organisations involved.

In the world today, we see greater regulation of how to prevent such activities happening so that customers can once again put trust in the financial system. However, we will continue to see instances of financial crime coming to light as we move into an era of increased online cyber crime; and as criminals are increasingly becoming more sophisticated in the way they attempt fraud.

Regulators have set out specifically what measures they expect financial institutions to have in place to safeguard themselves. This includes compliance with both the letter and spirit of the relevant laws and regulation. Where firms fall short of expectations, there is no doubt that it will only be a matter of time until they will be investigated by the relevant body.

Financial crime comes in different forms so organisations should explore what exposures they have to such risks and how they will minimise such activity impacting upon their business. This includes educating staff to identify the tell tale signs.

Organised crime members continue to embed themselves in businesses to identify system weaknesses in order to manipulate others through bribes and to commit fraud. Insider criminals continue to be a major threat for a number of businesses and are becoming increasingly harder to spot.

What are some key lessons organisations can learn from this?

Any lender of any size should already have the necessary controls in place to uncover fraudulent activity at a much earlier stage. However, there is still a lesson to be learnt here by all financial services organisations in ensuring they have the proper safeguards and necessary procedures to make sure they prevent such threats arising. Financial organisations should take appropriate steps to investigate and report money laundering activities appropriately through the proper channels.

Internal training is key in equipping everyone within a company to recognise suspicious behaviour, and any other potential factors, so individuals are likely to identify the tell tale signs. We believe that a number of firms and individuals are unsure about what they need to do in order to raise a suspicion of wrongdoing. It is important that people are made aware of this and are then properly protected.

Having a strong corporate culture that promotes honesty and integrity in all employees remains a crucial mechanism in fighting fraud. Encouraging openness and transparency should always remain a priority, allowing employees to feel they can raise suspicious activity appropriately, or go through the whistle-blowing process in confidence should they need to.

Any money, goods, property, and extravagant hospitality that is received by an individual should be appropriately disclosed; this could be the tell tale signs of bribery and potential money laundering.

What are the tell tale signs to look out for, as an example?

Any business unit that runs as a personal fiefdom for a senior manager and does not have somebody at a higher level managing and overseeing transactions is going to be a recipe for disaster.

Where there is no segregation of duty, i.e. the same individual is signing both the request and approval of transactions, a red flag should be raised immediately. A failure to segregate was of course at the heart of the Barings Bank collapse as far back as 1995.

Finance and compliance teams should be equipped with the right capabilities and knowledge to identify suspicious activity appropriately, such as an unverified or significant amount of money going into an account or money being passed around between accounts; inappropriate behaviour; or perhaps individuals receiving significant gifts in value.

Another serious warning sign is a sharp increase in customer complaints and compliance managers should always be aware of the level and nature of complaints an organisation is receiving. If there is a sudden influx of similar complaints about activity within a certain division this could well be a sign that something is not right.

"This is exactly why we like to work with people who understand the industry and can identify potential issues and create solutions."

Jon Saltinstall, Senior HealthCare Banking Consultant, Lloyds Bank