Cicero Policy Briefer

Issue 7, December 2006

Getting Tough:
The FSA and new ways of tackling financial crime

By Jacob Coy

Financial crime remains a thorny issue for financial institutions, authorities and consumers—and not one of insignificant scale, either. While it is difficult to quantify exactly how much happens as much goes undetected, there is little doubt that perpetrators are becoming increasingly sophisticated.

Crime involving money manifests itself in several distinct forms—unauthorised withdrawals from current accounts, money laundering and terrorist financing. Each new technological advance holds new promise for tackling malfeasance, but also the opportunity for deception via that medium.

While the old anti-money laundering regime might have been effective, it was achieved with a rather blunt instrument. Financial institutions interpreted the regulations in a way that was particularly encumbering for customers and staff, as well as rather inconsistent with the FSA’s overarching principles and risk-based approach. However, the improved regime holds a great deal of promise, even if the challenge remains in implementation, and it will be interesting to see how the FSA and industry can work together to get this right. Of particular need for the FSA is to work with firms to end the practice of being overly conservative to avoid even the remotest possibility of infraction.

Beyond this, I believe that the FSA, industry and law enforcement need to rethink how financial crime—particularly fraud, money laundering, and the financing of terrorism—is to be tackled. By broadening and deepening the cooperation of these disparate institutions in order to develop new techniques with which to combat it, tremendous rewards can be reaped for everyone—greater safety and security; smarter targeting of resources; invasive intelligence gathering; and, ultimately, a greater degree of difficulty in funding illegal activities.

While I recognise that there is a lot of work already being done, I remain to be convinced that there isn’t much more potential to enhance this through the use of targeted surveillance and pioneering work in data analytics. This would allow a great deal of work to be done without consumers doing too much of the ‘heavy pulling’, or having to cope with yet another bureaucratic regime.

However, this throws up numerous privacy concerns —and not without good reason. Some readers will remember the furore over the SWIFT involvement with the US Department of Justice’s programme of monitoring transactions and activities in the United States. However, there must be a middle way—with all of the resources of the financial services industry and the global law enforcement community, there must be a way to develop tools and approaches without compromising law-abiding individuals’ privacy. The potential benefits are immense for everyone involved—except the criminals and terrorists.

Jacob Coy can be contacted on +44 (0)20 7665 9535 or click here to email.

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