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FCA files money laundering charges against NatWest

The FCA has started criminal proceedings against NatWest for breaching money laundering regulations. John Dobson examines how the banking sector should better protect against fraud.

23rd Mar 2021
CEO SmartSearch
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The news broke recently that the Financial Conduct Authority (FCA) had launched its first criminal prosecution under money laundering regulations, following a four-year investigation into the activity of a NatWest account in the UK.

The FCA claims deposits were made into the account totalling £365m between 2011 and 2016, which included £264m of cash. The amount highlights that no business, or bank, is too big to fall victim to fraud.

The FCA claims NatWest failed to sufficiently monitor and scrutinise the activity, and in doing so failed to comply with money laundering regulations. If convicted, NatWest could face record fines.

According to the BBC, both NatWest and the FCA declined to confirm whether the investigation centred on a Bradford gold trading business called Fowler Oldfield, ‘which was raided in 2016 and saw four men convicted of delivering up to £2m a day in cash.’

NatWest allegations highlights sector security gaps

If convicted, NatWest could face fines of tens of millions of pounds. It should be said that NatWest has been clear about co-operating with the FCA and has said it takes its responsibilities to prevent money laundering extremely seriously.

But the first reaction most people would have on hearing the news would be, how is it possible that a bank the size of NatWest could be at the centre of a money-laundering allegation of this size? And the answer to that will come out as part of the judicial process.

While this is not the place to comment on the specifics of that case, it does raise certain issues that are common in the banking and finance sector where it’s easy to see that gaps in security have opened up.

From the outside, it’s fair to assume that global banks and financial institutions will have all the latest security systems in place to protect their assets and keep out fraud.

However, that protection is only as strong as the weakest link in the chain, and in our experience, that weak link tends to be the procurement process to acquire the solutions.

Although a generalisation, the banking sector has a tendency to select its IT systems based more on the cost of implementation, than the functionality and effectiveness of what it does. The price may be right, but the solution can be found wanting in its ability to spot fraud and money laundering activity.

To that extent, it’s a completely false economy to think you can save a few million pounds on the IT solution because if you do get caught out, the bank could face multi-million-pound fines.

Long delays to implement new tech systems

Another concern about the procurement process for a lot of banks is the length of time it can take for systems to be implemented. 

It can take anything from one to three, or even four years in some cases, for the process to go through, during which time a lot will have changed in terms of technology. 

At the same time, regulations will change or new ones introduced, which makes it essential that systems can be updated and kept in line with those changes.

But one area where banks could dramatically improve their effectiveness at preventing fraud is to move away from manual due diligence processes to automated systems.

There is a limited amount of resource to monitor and identify suspicious activity and it’s often left to a small group of colleagues painstakingly going through each case. 

As the vast majority of customers are law-abiding and legitimate, that means they are wasting a huge amount of resource which could be focussed on the cases that raise suspicion. 

SmartSearch has worked with a customer with 20,000 cases of sanctions and politically exposed persons (PEP) alerts. These all required due diligence carrying out and by switching to an automated system we were able to reduce that down to just 57 suspicious cases. 

Not only was that far more efficient in weeding out the truly suspicious cases but also saved huge amounts of manhours and costs.

While it is the case that no business or bank is too big to fall victim to fraud, there is a lot more the banking and finance sector could do to bring due diligence processes up to date. 

It is time to embrace the latest technological solutions that are available today if banks and financial services want to stay one step ahead of criminals and money launderers.

Replies (1)

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By Paul Crowley
25th Mar 2021 13:41

Is it time for a 2 tier banking system?
Banks that act within the law and other banks?

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