Irish firms are far more confident in their ability to detect financial crime compared to their UK counterparts, according to research from LexisNexis® Risk Solutions

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Irish firms are far more confident in their ability to detect financial crime compared to their UK counterparts, according to research from LexisNexis® Risk Solutions

94% of respondents claimed to be very confident in their ability to identify and track new types of crime and criminal methodologies, compared to just 65% of UK firms

Irish financial institutions are far more confident in their ability to detect financial crime compared to their UK counterparts, according to new research released today by LexisNexis® Risk Solutions. 94% of Irish financial institutions feel very confident in their ability to identify and track new types of crime and criminal methodologies, compared to just 65% in the UK. These revelations come against a backdrop of an ever evolving financial crime landscape, and increasingly complex anti-money laundering regulations.

These findings form part of the Future Financial Crime Risks 2020 report which seeks to understand banks’, fintechs’ and asset managers’ perceptions of the current financial crime landscape, alongside identifying what the current risks are, and where they see risks emerging in future.

When asked about the threats that they have been exposed to in the past 12 months, the three most common forms of attack detected were the criminal use of third party advisers, experienced by over half (54%), whilst 47% detected use of money mules, and 38% detected the abuse of UK/Irish offshore corporate structures.

Surprisingly, only 11% of Irish firms reported being exposed to criminal use of emerging technologies and methodologies, such as cryptocurrencies, significantly less than the quarter of UK firms (26%). Similarly, fewer than one in ten (7%) Irish firms expected misuse of cryptocurrencies to pose a growing threat to their organisation in the next 12-18 months, compared to nearly a third of UK firms (29%). However, this may change moving forwards given that the Fifth Money Laundering Directive (5MLD) has recently been authorised for implementation in Ireland. 5MLD brings emerging technologies under regulatory scope for the first time, and was brought into force in the UK in January this year. This regulatory lag could be behind Irish financial institutions perceiving the threat as lower when it comes to detecting and mitigating this type of crime.

In addition to emerging technologies, firms highlighted a host of other threats they perceive to be future risks, including trade-based money laundering schemes (35%), exposure to money mules (33%) and criminal use of third party advisers (27%).

When it comes to the cost of compliance, the research found a large disparity between Ireland and the UK. On average, in the last 12 months, mid to large Irish firms spent €23 million on compliance, with small firms spending €3.1 million. In the UK, spend was significantly higher for mid to large firms at an average €48.9 million, and €9.5 million for small firms. Despite this disparity in costs, firms from the two countries allocate their funds in the same way, spending 64% of the compliance costs on labour, and 32% on technology.

While on paper it appears Ireland and the UK share a proportional spend between human and technological costs, in real terms, the reliance on human labour is greater in Ireland because the cost of human capital is less, leading to a higher relative headcount. Therefore, there is a greater imperative for Irish firms to move towards increased technological investment.

Adopting technology to automate processes ultimately allows firms to redeploy humans to carry out more effective, risk-based analysis. However, according to some respondents, firms are unwilling to invest in new technologies designed to limit financial crime unless prompted by the Central Bank of Ireland.

Steve Elliot, Managing Director at LexisNexis® Risk Solutions says:

The fact that Irish firms are so confident in their ability to detect financial crime threats is in equal parts worrying and promising. Should their confidence be misplaced, then we are at risk of letting financial crime continue undetected and undeterred through the financial system.

Emerging technologies and criminal methodologies have become such a financial crime risk that the regulator has included them in their anti-money laundering framework, most notably in the Fifth Money Laundering Directive. Therefore, it’s vital that firms are aware of the risks they pose, and are able to mitigate them.

To ensure that they stay abreast of all forms of financial crime, firms need to focus more on the role of technology; incorporate data analytics, broaden their KYC focus, apply deeper identity data and linking technology, and implement smarter transaction analysis, if not they risk letting criminals creep through the cracks, and infiltrate the economy with dirty money.”

Article Published: 12/10/2020