Reporting and Governance

Credit Suisse is no stranger to controversies. Over the last decade, official investigations and leaks to journalists have revealed the bank’s facilitation of suspect activities, from tax fraud and secret loans to forex manipulation and money laundering.

There’s no denying the concern of having such a renowned financial institution linked to these illicit undertakings. Rather than being viewed in isolation, they are symptoms of a larger cultural problem at Credit Suisse. The Financial Conduct Authority (FCA) adding the bank to its watchlist is an attempt to ensure the bank internally challenges risky activities and transactions.

This move by the FCA is another blow to an already tarnished reputation that will take years to address and recuperate. Yet Credit Suisse is by no means an outlier; as has been demonstrated by the recent imposition of sanctions on Russian oligarchs, a significant number of financial institutions are knowingly or unknowingly involved in illicit activities such as money laundering.

It’s a systematic challenge that requires a global response. In the EU, law enforcement officials estimate that professional money launderers have a 99% success rate in running criminal profits through the existing financial system. In the US, 1% of financial proceeds of crime are recovered each year.

While culture is part of the reason for this, a bigger factor has to do with misallocated investment, with banks using outdated monitoring processes. The volume of transactions they facilitate is growing, yet the vast majority rely on hiring more people using manual techniques which cannot handle the amount of available data.

There are two ways to address this. The first is linked to technology. Simply put, data is key to identifying and reducing illicit activity, and financial institutions need to start better integrating technology to ensure they can readily monitor activities and flag any risky transactions that require further review. Banks will need to have sophisticated detection processes in place.

Any new approach should start by applying a comprehensive Know Your Data (KYD) approach rather than the customary Know Your Customer (KYC), making sure all banks are fully aware of the data that they manage.

The second is to set a global benchmark for managing financial crime risk. While addressing individual cases is valid, having all financial institutions adhere to a set standard of financial crime risk ensures transparency and will help lead to effective preventative measures. Imagine the impact on banks’ behaviour if they had to display their financial crime risk ratings, ensuring they are made accountable to the general public and regulatory bodies.

Without a completely new approach to how banks manage financial crime risk, the fear is that cases like Credit Suisse will become the norm. Banks will be put on watchlists and fines will be issued, but such measures are merely putting out flames instead of stamping out a larger fire. If there is no new approach, it will only be a matter of time before another major institution finds itself in the headlines for all the wrong reasons.

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