What factors allowed some companies to stay ahead of the game?

FinScan’s Global Survey

Those surveyed came from compliance, regulation, and technology sectors

FinScan (a leading provider of AML/KYC consulting and compliance solutions) conducted a global survey to see how the anti-money laundering (AML) and anti-financial crime (AFC) compliance communities are dealing with the unique challenges brought on by COVID-19. The survey looked at companies that came from the regulation, compliance, auditing, consulting, and information systems industries. The results gleaned some useful learnings on the effectiveness of different pandemic response strategies, and whether or not those strategies can help companies return to normal operations faster. Everyone is concerned about what the “new normal” will look like in the post-pandemic era, and after analyzing these responses, it is clear that planning and preparation will be key.

Top COVID-19 Challenges

There were many challenges created by the pandemic, but these are the top three:

Many anti-financial crime compliance departments were caught off guard by the sudden onslaught of the coronavirus pandemic. Here are their biggest challenges:

Challenge 1: Remote Working

The top challenge facing the compliance community during the coronavirus pandemic has been the need to work remotely from home while lacking the proper technology and access to internal IT systems required to support such a work environment. Many institutions have site-specific software and systems in place, making it extremely difficult to safely support employees working at home. Without a secure network to support employee workloads, there is an increased risk of leaks or security issues when employees use their personal networks.

Companies in the AML/AFC community might not have a lot of experience with cloud-based solutions to this issue either, which is why many struggled to get out of crisis mode once stay-at-home orders were in place. It seems that no matter what industry responses came from, the problem of working remotely and staff availability was the number one concern.

No matter what industry respondents were from, all saw that remote work was the most difficult challenge.

With 89% of respondents working with a stay-at-home order, institutions also had to address the issue of how to monitor employee productivity. The FinScan survey found that those businesses with automated management software in place to monitor productivity had a stronger sense that business could continue as usual (BAU), than those that relied on manual reporting.

Challenge 2: Compliance Risk Exposure

Most organizations feel that their exposure to compliance risk has increased, since many spent significant amounts of time in crisis management mode, as opposed to getting back to normal operations. They found that their normal compliance controls have been compromised due to:

Issues surrounding remote working conditions
Having inadequate IT support for remote access for the entire company
Lack of proper due diligence on new business opportunities
Slow rollout of online solutions

The regulation industry was most likely to believe their compliance risk would increase significantly.

Among the survey responses, 53% believed that their risk will increase due to necessary COVID-19 response strategies. When you break this down even further, the regulation/law enforcement sector believes their risk will increase significantly compared to compliance and auditing industries. The top concerns with regards to risk include:

Increase chance of fraud/scams;
Data leaks;
Limited resources for internal procedures;
Sub-optimal due diligence;
De-prioritization of compliance;
Shutdown of government entities;
Physical risk at the workplace.

Challenge 3: Increase in Criminal Activity

The sheer increase in the number of criminal activity attempts and increased alert volumes were also identified as key risk drivers. 63% of respondents expected that criminal activity levels would rise — as well as the resulting alert volumes and backlogs — and that their ability to meet regulatory requirements would be hampered due to the pandemic situation. Many institutions feel that a rise in criminal activity will be aided by the fact that they are working to find solutions to multiple issues all at once, creating opportunities that criminals can take advantage of. Companies are still dealing with the difficulties of working remotely, an excess of alerts, delays in due diligence, and a rushed implementation of online services.

With a rise in criminal activity expected, respondents thought their backlog of alerts would increase or would remain the same.

Compared with regulators and law enforcement, compliance professionals working for an organization were more optimistic in their outlook of how the COVID-19 situation would impact them and how effectively pandemic-related challenges could be addressed. This difference was especially pronounced in their views on whether the backlog would increase, and if they would be able to meet regulatory requirements and deadlines. For those in the auditing or compliance fields, they were hopeful that the backlog wouldn’t increase due to two factors: the closing of businesses and fewer transactions taking place overall.

Those in the regulation/law enforcement industries believed they’d see a larger backlog due to criminal activity.

Important implications from COVID-19

Looking forward, companies should be better prepared to adapt

Throughout the survey, there was a correlation between having a business continuity plan in place and the organization’s level of risk exposure. For those who had a business continuity plan in place, the reported risk level was lower. It seems that those institutions who were better prepared were those that had remote work capabilities already and automated staff monitoring in place, permitting them to get back to BAU faster than others.

Companies had lower risk exposure when they already had a business continuity plan in place.

Monitoring staff productivity in a remote environment is still the most pressing issue, especially due to limited IT capabilities, which is shown to significantly limit general readiness for business continuity and increase risk exposure. This is followed by the need to overcome disruptions and delays in normal operations to lower compliance risk and return to BAU.

It should be pointed out that those using automated management dashboards were 2x more confident in their “business as usual” (BAU) readiness than those with no way of monitoring staff productivity.

Ways to move forward

This crisis has highlighted digitalization of AML compliance functions as a key opportunity for improvement, especially in the areas of customer onboarding and enabling virtual “anytime, anywhere” compliance to support increased online customer transactions. This survey also discovered that there is a need for better detection tools for fraud, transactions monitoring, and watch list systems.

It also made clear the need for companies to have an automated way to monitor staff productivity to help minimize risk exposure and return to BAU faster. Organizations should take this as an opportunity to incorporate a more pandemic-related risk-based approach into their existing business continuity frameworks.

Download the full report for more details

Read the complete study to find out how the anti-financial crime and AML compliance community around the world is coping with COVID-19 challenges and what the key learnings and implications are for the “new normal”.

This guest post was featured by FinScan: FinScan is a global provider of AML/KYC consulting and compliance solutions trusted by leading organizations worldwide. FinScan efficiently screens providers against any high-risk, sanctions, or black lists, minimizing false positives while reducing the risk of missing true hits. FinScan’s comprehensive offerings include sanctions and PEP screening, beneficial owner due diligence, transaction screening and monitoring, and ID validation capabilities.

Contact: Karin O’Sullivan - kosullivan@innovativesystems.com

The Covid-19 Pandemic Reveals Wide Gaps in Anti-Financial Crime Compliance Worldwide