Thought leadership

Despite significantly increasing investment in compliance and being continuously under the scrutiny of regulators, economic crime in financial services has increased, showing new thinking is needed to make investment in compliance deliver more value and tackle economic crime.

The views are published in a new paper by PwC examining how the financial services sector (including Banking & Capital Markets and Insurance) responds to economic crime. Financial services has traditionally proven to be the industry most threatened by economic crime, as it serves the financial needs of all other industries.

In a survey released earlier this year, 46% of 1,513 financial services respondents to PwC’s economic crime survey reported experiencing crime in the last 24 months, up from 45% in the last survey (2014). This outpaces the industry wide global average by 10% (46% vs 36%).

In the UK, a quarter of those surveyed included corporates in the financial services sector with more than 10,000 employees. More than 60% of UK respondents reported suffering economic crime in the last two years, 10% of which was carried out by internal perpetrators. Almost 70% say they increased spending on compliance in the past 24 months with 60% expecting it to increase in the next two years.

It means the industry has not managed to substantially reduce the level of reported economic crime despite the level of investment in compliance outpacing the wider business world. The cost impact of crime has also increased with 46% of those experiencing losses valuing them at up to $100,000 for every crime (40% in 2014), and almost a quarter (24%) experiencing losses between $100,000 – $1m (23% in 2014).

Tackling economic crime and proving positive intent to regulators has often meant financial services spending more on compliance. However, the increased spending has not resulted in less economic crime.

· 16% of those that reported experiencing economic crime had suffered more than 100 incidents, with 6% suffering more than 1,000.

· Cyber crime reports increased 10% (49% experienced), and insider training 6% (from 4% to 10%).

· 53% of respondents reported that spending on fighting economic crime was increasing – 55% expect it will continue to increase.

· 37% of financial services respondents stated that they were affected by cyber crime in the last 24 months.

· 33% of our respondents revealed that data quality still can restrict compliance with anti-money laundering regulations.

· Financial services also faces a global shortage of sufficiently skilled and experienced compliance professionals, particularly in areas such as anti-money laundering and counter-terrorist financing compliance, to help understand and manage the interconnected risks of economic crime.

· Although 58% of frauds were committed by external perpetrators, higher than the average of 41%, in financial services 29% were committed by internal perpetrators – generally junior or middle management – although 14% were from layers of senior management.

Financial services organisations have struggled to join the strategic dots across the growing volume, sophistication and variety of economic crime.

Andrew Clark, a PwC forensics services partner focusing on financial crime, said: “New thinking is needed to make investment in compliance deliver value and to tackle economic crime more effectively. There is a need, across the industry, for new approaches and technologies to more effectively target areas of greatest risk. Culture has been an area of focus in the wake of the financial crisis and this needs to continue to more firmly embed compliance behaviours into the heart of organisations. Regulators also have a key role to play – keeping rules up to date with developing technologies and encouraging innovative ways to tackle crime.”

35% of respondents thought financial crime had a high or medium impact on relationships with regulators, with the costs of remediation and compliance described as “staggering”. Spending should be targeted where it can make the biggest difference. For sophisticated global institutions, this means automating labour intensive processes, improving the quality and accessibility of information and evaluating new, more effective technological detection methods including blockchain, biometrics and data analytics.

Andrew Clark added: “Financial services organisations need strategic financial crime risk assessment approaches to make sure policies and compliance programmes target the areas of greatest risk. And the best way to tackle financial crime is by embedding the latest strategies and technology into day-to-day operational decision making.”

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