5th July 2019

Combating Financial Crime with Digital Transformation - A Race to the Finish Line

<span id="hs_cos_wrapper_name" class="hs_cos_wrapper hs_cos_wrapper_meta_field hs_cos_wrapper_type_text" style="" data-hs-cos-general-type="meta_field" data-hs-cos-type="text" >Combating Financial Crime with Digital Transformation - A Race to the Finish Line</span>

As we know it, to remain competitive in this ever-evolving digital world as a business is a challenge, let alone within the wealth management industry. Wealth management companies are being driven more than ever to innovate their technology to keep up the pace with future proofing their business. But it goes without saying that this industry’s digital maturity level is still quite embryonic. But why is this? We explore why it’s a slow burn within the wealth management sector and how important it is to keep up the pace if you want to survive the race of digital transformation.

A Paradigm Shift

To help set the scene we'll use Malta as an example. Previously having had an immature wealth and financial services industry, Malta has had an influx of sudden growth, however, with the typical mindsets the industry has, carries certain trepidation when it comes to any discussion around a business maturity model and then those anxieties start to creep in.

It is all well and fair we need to keep up the pace to innovate; in the world of digitalisation there are things wealth and financial service firms can do as a business to begin future-proofing at this current time. For instance, cloud migration could be one of them or bridging the gap between new and legacy systems to ensure the interoperability aspect of IT systems can support this. You could say, it’s all one big competition to the finish line to reap the rewards of new, digitally efficient, scalable, agile technologies that would help businesses meet their objectives and eradicate competition.

Attracting new business is key, but what comes along with that is having the innovative digital business mindset, but it’s a balancing act within an industry which isn’t yet fully mature. That said, the real challenge here is how to keep abreast with the uncertainty of the ever-changing compliance and regulation this industry has and how digital transformation is very much a solution and can be a real game changer for this space. Although there's no magic formula to change mindsets and business strategies overnight and there's definitely no one-size-fits-all remedy, which is simple. We know it’s complex and it’s going to take time, but it's going to be the way forward for all soon.

Malta’s growth as a financial centre has increased risk of criminal activity in the jurisdiction. This means that both the regulators and the industry need to continue to invest into understanding the dynamics and source of the problems, in other words how criminals use wealth management and financial services firms to launder money and how it can be practically prevented.

Building for the future

The scarcity of education within the industry when it comes to digital transformation is prevalent. Perhaps there is a definite gap between digital not being part of a wealth management or financial services business strategy. Shouldn’t it rightfully earn the place to be recognised as its own strategy that the business is bought into? Perhaps this would support the typical worries and burdens of the industry from a cyber security and data protection perspective, as well as adhering to compliance and regulation. Wouldn’t this support with eradicating wealth management and financial crime…

It seems now more than ever, regulators need to further educate wealth management and financial service institutions on the implications and penalties which are enforce. There needs to be guidance and dialog between how to meet regulatory compliance, as well as keeping up a constant competitive and innovative transacting business 24/7, legally, rather than woefully once criminal activity has been uncovered and business reputation damaged, lost and not to mention penalised with a hefty fine.

In this regard, the Maltese Finance Minister Edward Scicluna recently disclosed plans to create a new governmental agency tasked with increasing money laundering prosecutions in the country. Although the structure of the proposed investigatory body is not yet determined, officials hope to launch an agency capable of dismantling complex financial schemes and boosting, what the Minister describes as a “key metric” in evaluating the effectiveness of anti-money laundering efforts, criminal convictions. Prosecutors in Malta will also place a greater emphasis on including money laundering charges in tax evasion cases as part of an effort to deter tax cheats from moving their money into the jurisdiction.

In addition to this initiative, the Maltese Financial Services Authority recently published an AML/CFT strategy and launched a programme of skill augmentation, acquisition and transfer with the support of global expertise. It is also working on strengthening the quality of its supervisory approach – both in financial crime and generally – addressing historic qualitative and structural issues and is investing in technology to support all its supervisory processes including in financial crime.

So digital transformation isn’t just ensuring that businesses are future proofing, building for a thriving modern future, but ensuring the wealth management and financial services industry is exploring all areas of digital transformation as a strategy alone. And obtaining the right advisors and educators, so digital transformation can rightfully be recognised in this industry as a true business enabler to support with compliance, regulation and protecting critical data before businesses are compromised and the race is lost. We can all get to the finish line together.

Melina Lori is the Southern Europe Consultant at Microgen Financial Systems and knows that while Excel spreadsheets may work on day one, they start going wrong from day two!

You can find Melina on LinkedIn and if you’d like to know more about how Microgen technology can help you meet compliance and regulation in the digital transformation race, please email
Melina at melina.lori@microgen.com.