Financial Crime Regulatory Complexity Due to Rocket in 2022

2021 has been a year of two halves – the first we were all dealing with life under lockdown. And the second half, supercharged with the vaccine programme, has seen life trying to get back to normal. But whatever the conditions, financial criminals have carried on regardless, capitalising on pandemic conditions and our increasing reliance on technology. And we see this continuing strongly into 2022.

So with this backdrop in mind, what do our financial experts think are the principle themes for next year? What is going to happen in the world of financial crime? Here are some of my 2022 predictions:

• Regulatory complexity to combat financial crime due to soar in 2022: this is down to lots of factors. One is that while the UK is no longer bound by EU directives – it opted out of 6AMLD, the sixth iteration of European-wide anti money laundering legislation – there are rumours the parameters of the Financial Services Bill is being expanded instead to cover fraud, false accounting and insider dealing, in addition to money laundering. This will mean a significant uptick in regulatory adherence for financial services firms.

• Dear CEO – the saga continues: this autumn the FCA wrote to the CEOs of all the UK’s top banks to warn them that weaknesses in their financial controls could lead to fines and penalties. Now they have identified flaws in their risk and control measures, they are under pressure to solve these weaknesses asap. This will be a focus for banks at the start of 2022.

• Burgeoning financial crime: £12bn of criminal cash is estimated to be generated annually in the UK. £3bn of fraud is impacting individuals and businesses annually. Fraud now constitutes over 30% of all illegal activity in the UK - fraud and cybercrime combined is over 50%. Organised criminals are realising the pickings are far greater in financial crime than they are in drugs and burglaries, so we expect these figures to creep up in 2022.

• Escalation of digital payment risk: the pandemic has heralded in a greater reliance on digital technologies, which gives opportunities to fraudsters for their phishing scams, ID theft, e-payments etc. The use of cash is rapidly dwindling and any technology touchpoint is a potential area of risk for banks and consumers alike.

• The uptick in SARs: the 2020 Suspicious Activity Reports (SARs) annual report saw a 116% increase in submissions from the previous year. This is partly down to the sheer volume of transactions within the UK. But although most of these SARs will be genuine, some will be submitted defensively i.e. employees who think it’s better to report than to be exposed. If UK legislation goes the way of ‘failure to prevent’, then this is likely to increase even more. Ageing, legacy technology is also a factor in the overproduction of alerts.

• ISA fraud crackdown: HMRC is planning a review of ISA processes and controls to ensure there is no fraudulent activity in Q1 2022. This is something that financial institutions need to be aware of. Customers might unknowingly have multiple ISAs with multiple providers, but individual allowance is £20k - customers with more than this allocated to ISAs are breaching tax legislation.

• The rise of money mules: this is a trend that has escalated during the pandemic and we think it will continue. A money mule is a person who often unwittingly allows criminals to use their bank accounts to transfer money to another bank account and so facilitates money laundering. The criminals might pay a small fee - for example, students who are facing financial hardship - or often simply exploit elderly people getting to grips with technology.

• The rise of DAML requests: £172m has been denied to suspected criminals as a result of DAML (Defence Against Money Laundering) requests, a 31% increase on the previous year’s £132m and over three times the £52m from 2017/18. This will continue its positive trajectory in 2022.

It’s always difficult to make predictions in the financial crime arena as new trends are continually on the horizon. As soon as the industry catches up, criminals evolve their ways of generating and laundering stolen money. Any increases in regulation to help financial institutions fight financial crime have to be welcomed – but to be on the front foot, financial institutions have to examine their technology, processes and data quality so they can deal with it in the best way.