5 Key Trends in Financial Crime in the MENA Region
Refinitiv recently unveiled the fifth annual edition of the MENA Financial Crime report titled “Financial Crime In The Middle East And North Africa 2019”. In this edition of the report, the researchers took a closer look at the forces that have shaped today’s risk and compliance function and reveal the changing attitudes and responses to regulation and financial crime across the region.
“Our analysis reveals a compliance function that is challenged by a constantly changing regulatory environment and at times overwhelmed by the rapidly growing volume of regulatory information. Yet there are signs from many of the banks we surveyed that they are taking the necessary action to address these challenges,” Refinitive Managing Director of Risk, Phil Cotter says in his introduction to the report. “Our results show respondents are increasing investment in their compliance function and relying on technology to help them fulfil their regulatory responsibilities and step-up their response to the financial crime challenge.”
The report highlights five key trends from the survey results:
- Technology is back in the spotlight
The results indicated an uptick in investment, as well as expectations to invest in technology, and it also found that the majority of respondents belonged to organisations that have embraced some form of innovative technology.
When asked what innovative technology they had embraced in their compliance solution, 58% indicated some kind of investment in new technology. Also noted is a drop in investment into skills and training, which may indicate a swing away from human resources to technology, at least in the short term.
What will be the impact of this swing towards technology? The authors believe that one likely outcome is a change in the make up of the compliance team. One of the biggest compliance headaches has been the massive volume of false positives, and to a lesser degree false negatives, that have to be remediated. This creates a huge volume of work and has the tendency to divert much needed resources away from actual risk to low risk data. Increased use of innovative technology, software designed to do the ‘heavy lifting’ of the onerous compliance task, will allow human expertise to be redirected towards tasks that require critical thinking, more time and analysis to combat the complex challenges of regulatory compliance.
- Personal liability is a growing regulatory risk
We see from responses to certain questions that there appears to be a low level of concern about enforcement activity generally, and about personal liability in particular. This contrasts against an increase of awareness of the risk of personal liability as cases increase worldwide, as regulators warn that they will increasingly use personal liability to target senior executives. The message from regulators is one of an increase in personal accountability and oversight, but for MENA-based executives, it does not appear to have resonated.
- Ambitious countries surge ahead
Many countries in the MENA region have ambitious plans to integrate their economy regionally and globally. An analysis of survey responses per country provides a snapshot of those countries that are perhaps more motivated for success than others. Responses to certain questions point to a number of countries with private sectors that are showing a commitment to compliance processes, as they work towards aligning their business environment with other, more advanced, environments elsewhere.
- Small banks on track to upgrade technology
A contrast of responses from large financial institutions against those from small financial institutions revealed that small institutions tend to lack the capacity to easily understand and meet their regulatory obligations. They have yet to embrace advanced technology as a tool for helping to cope with an ever-changing regulatory environment, and they lack financial crime programs. Responses also indicated, however, that there is an awareness that they need to align their technology capabilities with those of the larger banks. Their expectation of technology change matches that of the large banks, so they know that they have to change, and there is probably a plan in place to upgrade policies, programs and technology.
- More anti bribery and corruption regulation
While most regulated organisations have some level of regulatory compliance response in place, the likelihood is that it is an anti-money laundering policy. The report found that AML tends to dominate compliance policies in MENA-based organisations and there seems to be a lack of awareness that anti bribery and corruption (ABC) regulation demands a unique response. Indeed, over the lifetime of this study, there has been an apparent dearth of ABC policies, yet it is in this area that we see increased regulatory activity. This points to the possibility of a vulnerability in the compliance armour for many organisations in the region. A whistleblower protection policy is a crucial element of a sound ABC response yet it is often overlooked, the authors note.