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How to prevent financial crime in five simple steps

By Chris Bourne, compliance expert and head of marketing at  Northrow, UK’s financial crime risk regulatory and compliance firm. 

Organisations from various industries across the globe need help in thwarting financial crime and other fraudulent activities. This is because fraudsters consistently improve their methods and hunt for system loopholes.

A single process flaw may impact an entire sector, especially if it involves a bank or other well-known financial institution. As a result, organisations must maintain constant vigilance and keep abreast of legislative developments and money laundering trends, typically enacted due to an organisation’s failure to combat financial crime.

Financial crime can be prevented in various ways, including the following, which all work together to combat fraudsters.

  • Implement strong internal controls

The prevention of financial crime requires the establishment of adequate internal controls. This may involve confirming clients’ identities, monitoring transactions for any suspicious behaviour, and identifying and reporting any atypical or suspicious activities.

  • Conduct regular risk assessments

Organisations can detect financial crime vulnerabilities and take the necessary precautions by conducting regular risk assessments. This may entail identifying clients or business partners who pose a high risk and putting additional controls and due diligence procedures in place.

  • Provide financial crime prevention training and education

Prevention of financial crime requires training and knowledge. Employees should receive training on corporate policies and related regulations and how to spot and report questionable behaviour.

  • Implementing strong KYC, KYB and AML policies

A crucial first step in combating financial crime is putting robust Know Your Customer (KYC), Know Your Business (KYB), and Anti-Money Laundering (AML) procedures in place. KYC rules entail confirming the identity of clients and evaluating their potential hazards. KYB procedures encompass ensuring the legality of businesses and their ownership structure.

By developing guidelines and practises to identify, stop, and report suspicious behaviours, AML rules aim to prevent using financial systems for money laundering and other illegal activities.

Organisations can detect possible risks and take the necessary precautions to prevent financial crime by using strong KYC, KYB, and AML procedures. These regulations can aid in preserving the organisation’s good name and averting financial losses from fraud or other criminal activity.

  • Foster a culture of compliance and heighten its importance

To avoid financial crime, it is essential to promote a compliance culture. Creating an atmosphere where employees are encouraged to report suspicious activities without fear of punishment and where adherence to rules and internal policies is prioritised inside all businesses is necessary to achieve this.

Financial crime prevention will always be a continuous fight

Although the methods discussed in this article will aid in the fight against financial crime, there is always a chance that it could still occur despite your best efforts and the protocols you have put in place. As with any financial crime problem, it’s crucial to avoid brushing any issues under the rug and hoping they disappear. 

It’s best practice to be upfront and explicit about what you’ll do in case of a breach, such as self-reporting it to the SFO, the FCA, and the financial regulators. Of course, there is no assurance that there won’t be a penalty, but they could be ready to impose lighter sentences on those who report financial crimes proactively and sincerely try to avoid future issues.