Financial crime (FC), both in how it is perpetrated and how we respond to it, is at a critical inflection point, in Australia and globally. Underpinned by a range of drivers, the existing framework for dealing with FC is no longer fit for purpose and must evolve with a laser focus on effectiveness.
In Australia, alongside the current and important reforms that are in development on the modernisation, simplification and extended coverage (to bring in the “Tranche 2” entities i.e. lawyers, accountants, trust and company service providers, real estate agents and dealers in precious metals and stones), there have been some promising examples of momentum building in the community for change in the status quo.
The AUSTRAC Regulatory Priorities for 20243 outlines AUSTRAC’s key focus areas and strategic initiatives for the upcoming year. The priorities include enhancing regulatory frameworks, improving compliance among reporting entities, and leveraging technology to combat financial crime. The priorities also place emphasis on the importance of data analytics and intelligence sharing to identify high-risk activities and entities. The overall goal is to enhance the resilience of Australia's financial system against criminal exploitation through robust regulatory oversight and collaborative efforts.
The direction of travel is positive, but we can and must move faster in Australia if we are to drive a material shift in tackling financial crime and improving outcomes. In collaboration with Deloitte’s Financial Crime team in the UK, we are pleased to present over the coming months a series of articles that explore the key shifts that we believe are required to effect a genuine “reset” in how financial crime can be more holistically challenged. These perspectives draw on global examples, contextualised for Australian organisations and conditions. Specifically, we will explore the following key changes:
Our first article introduces the challenge and the six key changes. We look forward to engaging with stakeholders across the financial crime community in Australia on these shifts and how we can continue the momentum built through the reforms process.
Financial Crime (FC) is a huge global problem causing significant social and economic harm – linked to drug trafficking, human trafficking, terrorist atrocities and other crimes, and often associated with organised criminal groups. As gatekeepers to the global financial system, financial services (FS) institutions play a pivotal role, invest billions annually in detecting and disrupting economic crime and the criminals that benefit from it. The standards expected from FS institutions, not just by government, regulators, and law enforcement agencies, but also by customers and society at large, continue to increase.
The current approach to preventing FC is ineffective, an estimated 2 to 5% of global GDP4 but as little as 0.2% of assets from crime are recovered5 and the increasing costs for FS institutions are not sustainable. Across a wide range of FS institutions, the current regulatory-driven approach to fighting financial crime has several common limitations, including:
In a series of articles, we shall describe six key changes that in our view, can be implemented incrementally, to drive a material shift in tackling the threat from FC and improving outcomes. But before looking at these changes, it is important to understand what is driving the need for change now.
Our research has identified a range of factors driving change that are increasing in importance, which not only increase the risks from FC, but also create opportunities for FS institutions to act in more innovative ways to combat it.
All these drivers of change mean that the existing framework for dealing with FC is no longer fit for purpose and must evolve. We have reached a tipping point, or a "reset moment", and we believe that the successful implementation of six key changes is required, as follows:
We will discuss each of these changes in our upcoming series of articles on the Future of Financial Crime. Although these concepts have been discussed individually, the greatest opportunity to drive material change is when these are combined to build a dynamic and timely view of the risks each customer presents. This will help provide focus and ensure appropriate resources are prioritised on the areas that are going to have the most impact.
As threats evolve, we need connected intelligence, combined with due diligence and monitoring, and a dynamic control environment, which is all underpinned by the right technology. This is an integrated future for FC, that is more effective and more efficient.
Please get in touch if you would like to discuss this topic further. Also look out for future articles in our Future of Financial Crime series – up next, a focus on intelligence-led risk management– what this means, why it's important, and some of the areas that need to be a focus over the short, medium, and longer-term.
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