Looking ahead to 2021
During 2021, there will be the usual challenges but there is also the opportunity to see shoots of rejuvenation as vaccines become available, the world emerges from lockdown and Brexit unravels.
The team here at NorthRow have gathered their views of the year ahead and what all this means for the world of compliance.
The potential fallout from non-repayment of BBILs/CBILs
With the country grinding to a halt, along with many European and worldwide trading partners, the scale of the rapid launch of the various UK Government bailout schemes has been phenomenal. Since the Spring, over £60bn has been lent by Banks, and other certified lenders, to approx. 1.4m companies as part of the Bounce Back Loan Scheme (BBLS).
Despite an extensive reliance on customer self-certification, 27k rejected loans, with a predicted value of £1.1bn, has already been reported, according to Catherine Lewis La Torre, Chief Executive of the British Business Bank. The swift deployment of the loans has delivered high levels of fraud and credit risk with The National Audit Office warning of government losses as much as £26bn.
The BBLS scheme will unravel from May 2021 as the loans are called for repayment, despite extensions and ‘pay-as-you-grow’ schemes to give borrowers flexibility. The government however will implement robust fraud investigation and debt collection arrangements to minimise the impact to the taxpayer.
Cash Flow management will be a focus for 2021 with businesses looking for additional funding to ride the continued fallout from the pandemic, combined with the pressure to commence repayments of the various loan schemes. Lenders will need to balance the fair treatment of customers with the mitigation of a significantly increased risk in their portfolio. Lenders will need to implement fast and reliable Customer Due Diligence for onboarding; have greater awareness of fraud and manage the ‘ambers’, (those cases where additional investigation will be required); together with a robust monitoring and remediation process.
In summary we predict a greater opportunity for lending in 2021 with a shift to reduce borrowing from 2022.
Anti-Money Laundering landscape after Brexit
The UK has generally had tougher Laws against financial crime than is contained within the EU Anti-Money Laundering Directives, and that is unlikely to change after we leave the EU. This makes sense and safeguards the UK’s obligations towards any UN Security Council requirements.
But that’s not to say that we are going to ignore what the EU is doing entirely.
One of the key aspects of this is whether the UK can negotiate any direct access to the sharing of data held at Europol, which it has had, as a matter of course, as a member, but will lose unless a deal can be struck for access – much like the USA has done. On one level it would make sense for the EU to look favourably on the UK having access because although we are leaving the Union, we are still a part of Europe and hold shared values, interests and threats, as well as other key international partners, making foreign policy co-operation in all our interests
As to 6AMLD, which includes 22 predicate offenses, covering things such as tax crimes and cyber-crimes, and looks to standardize money laundering definitions across member states, there is less concern. This is because the UK has traditionally held stricter and more rigorous AML Laws, that regulated entities, at home and abroad, are already used to complying with.
As a summary and on balance, then, the UK’s historically tougher stance on financial criminal activities puts us in good stead to continue to lead the way for our European partners and, although it’s unlikely to be a totally smooth path – in particular with regard to access to Europol – the indications are generally positive for the UK anti-money laundering landscape in 2021.
An explosion of Deepfake usage
Deepfakes are videos, images or audio recordings that have been distorted to present an individual saying or doing something they didn’t originally say or do. Rapid advances in AI algorithms means that they can be produced quickly and easily.
Although deepfakes have been used for social sharing and entertainment, there has also been an increase in the use of synthetic media being used for identity fraud and client impersonation. In fact, recent months have seen the first publicly documented cases of deepfakes used for fraud and extortion.
As we head into 2021 regulated firms will need to prepare for the growing threat of deepfake media being used to infiltrate their company’s security and client due diligence processes.
Your firm could be affected by deep fakes in a number of ways, including:
- Onboarding processes could be subverted and fraudulent accounts created to facilitate money-laundering
- Payments or transfers could be authorised fraudulently
- Accounts belonging to high net worth or high profile individuals could be hijacked
- CEOs can be impersonated, leading to employees being tricked into unauthorised payment transfers or divulging sensitive information
NorthRow has already taken steps to combat the growing threat of deepfakes with our RemoteVerify solution. We have partnered with iProov to integrate their ‘Genuine Presence Assurance’ technology into our remote client onboarding applications. iProov’s technology not only establishes the ‘genuine presence’ of a customer through facial recognition and anti-spoofing capabilities, but can Immediately detect if criminals are using deepfakes to try and gain access to customer accounts and data.
Deepfakes should therefore be on the agenda for 2021 as businesses should be confident that they actively detect and prevent fraudulent attacks from deepfakes when onboarding clients.
Accelerated digital transformation required to deliver customer experience
Digital transformation is forcing businesses to change their model and adapt to the new market reality. Previously, companies have driven the change but now customers are demanding the acceleration of digital interactions throughout their journey. Putting the customer first is already at the centre of many business strategies but technology has not always been on the agenda to the same degree.
With the pandemic driving rapid change to the way we interact businesses have now gained confidence in adopting digital technology at a far greater and quicker rate. NorthRow predicts that regulated businesses should use 2021 to deliver digital solutions to achieve transformation and avoid suffering financially before losing business to competitors.
Powerful data sets are the core of the NorthRow API rules engine. Regulated businesses can select the rules relevant to their business and consistently review the status of customers and rate them according to the businesses approach to risk. By using the API an instant approach to digital delivery is applied rather than cumbersome and time restrictive manual processes.
There is a balance between the customer and the regulatory requirements; highly engaged customers demand rapid onboarding and want a frictionless experience, whilst the business has to achieve customer due diligence and regulatory compliance throughout the entire lifecycle.
2021 will see a higher volume of customers, of all ages, using apps and online delivery of services, and it will need to be a year of renewed focus on digital and mobile user experiences, more personalisation and automation.
Successful delivery will result in engaged customers which in turn show they are more likely to :
· Try a new product or service from their preferred brand
· Refer the brand
· Make a purchase, even when a competitor has a better product or price
· Remain loyal
Digital banking has become the single most effective channel to drive growth, increase revenue and attract new customers. And yet with this growth comes the risk of greater fraud.
In summary regulated businesses of all types need to engage with their customers as a priority for 2021 as well as building a digital profile in order to achieve compliance and reduce their exposure to risk.
Some other hot topics for debate and further commentary for the year ahead include:-
Cross sector and cross border intelligence sharing
We are likely to see a concerted effort by governments, regulators and financial institutions to share relevant information and intelligence that can help with the fight against money laundering and counter-terrorist financing efforts in the year ahead. In fact the UK government recently released a statement promoting the need for cross-border information-sharing within corporate groups to help combat global money laundering (source).
At NorthRow, we often discuss the value of having a global AML watchdog with a more holistic and transparent approach. To achieve greater collaboration between banks, regulators, governments and the private sector to share knowledge and intelligence would mean at least keeping on par with the progression of the fraudsters tactics, but could it take us a step ahead in combating more crime?
Ultimate Beneficial Ownership
As with AML, greater global transparency for UBO registers will be a hot topic for 2021. Achieving enhanced CDD across regulated industries will deliver a wider understanding of fraud and money laundering. Ultimately it will support the fight in combating organised criminal gangs when it comes to financial crime. But how do we achieve global registers when a minority of countries don’t want to play ball? Should we expect those that abstain to pay a heavier price if they have increased illicit activity in their domains?
Will 2021 be the year that see’s the fate or rise of cryptocurrencies?
We could start with – What about Facebook’s controversial cryptocurrency Diem, (previously known as Libra), will it ever make it off the ground?
Then we have the FCA implementing the date for registration of crypto asset activity on 10 January with over 300 companies yet to register.
Further conversations are sure to be had in 2021 as tighter restrictions are enforced in some countries, which could lead to the second-tier risk jurisdictions providing a crypto and digital currency hiding ground as they have minimal regulatory effort.
Automated identity biometrics becoming the norm
In April this year, The Financial Action Task Force (FATF) released a statement encouraging “the fullest use of responsible digital customer onboarding and delivery of digital financial services in light of social distancing measures.”
In 2021 we will see more financial regulators authorising onboarding via automated biometrics as banking regulators in global territories, including Europe and the Far East, will authorise the use of automated biometrics instead of video calling for remote Know Your Customer (KYC) processes.
So there you have a brief rundown of our predictions for the industry in 2021. But keep your eyes peeled as we will continue to provide insight and commentary throughout the year ahead.