How ISO 20022 Can Help Banks Combat Financial Crime

The implementation of ISO 20022 represents a seismic shift towards a more harmonised and richer data model, which will improve banks’ operational efficiency and expand business insights. Most importantly, the new messaging format presents major opportunities for combatting financial crime. So, how can banks use it to not only improve their processes but also help make the world a safer place? We answered this question in our latest 100 Seconds video. 

ISO 20022 and the lack of efficiency in Financial Crime

On Monday 28^th June, PhilPaSS – the Philippines’ Real-Time Gross Settlement system, or RTGS – formally adopted the ISO 20022 payments message format. In doing so, the Philippines joins Japan, Switzerland, mainland China and India is leading the way with ISO 20022 compliance.

More than just a simple messaging upgrade, ISO 20022 will bring major challenges but also great opportunities for financial institutions to improve efficiencies. In the area of financial crime, for example, Financial Services firms spend over $180.9 billion on Financial Crime Compliance, yet less than 1% of global illicit financial flows are detected and investigated. During COVID-19, things got even worse: with financial crimes spiraling, banks had no choice but to increase their spending on financial crime specialists and screening systems. And yet, in 2020, fines for non-compliance with anti-financial-crime regulations exceeded $14 billion dollars. 

Financial Crime challenges which ISO 20022 can address

The reasons behind the lack of efficiency in financial crime are numerous. Omissions, poor data quality, and inconsistencies in data format and how MT messages are used mean banks are overloaded with false positives. And since new AI and machine-driven tools are still immature and regulators are cautious, banks are forced to constantly increase their workforce just to maintain compliance. Never mind disrupting crime. Also, with the enforcement of new regulations like the 6AMLD in the EU and the Anti-Money Laundering Act in the US, the list of offenses, and the number of required verifications on payments is only going up.

The question is: can ISO 20022 be the game-changer we’ve been looking for? The answer is yes. With more than 200 initiatives worldwide in over 70 countries, the new messaging standard will provide a clearer and enriched dataset for banks to work with, offering unique opportunities to fight financial crime. Let’s now have a look at the “how”.

3 Actions to leverage ISO 20022 in the fight against Financial Crime

The more harmonised and richer data model brought by ISO 20022 will undoubtedly help to improve the efficiency and effectiveness in the area of financial crime. Here are the top three things that banks will be able to do in this space:  

1. Firstly, they will significantly reduce the number of false positives by processing more structured data and receiving details like payment invoices in the remittance information, which will allow them to better understand the context of payments.
   
   
2. Secondly, financial institutions will increase efficiency while reducing costs by leveraging data technology, network science, and AI tools. AI and Machine Learning work better with the new ISO 20022 MX messaging format than the current MT messages. This will enhance regulators’ trust in new technology and enable banks to reduce costs and increase detection.
   
   
3. Finally, they increase effectiveness by collaborating and exchanging data more easily thanks to the common data format adopted across the industry.  
   
   

ISO 20022 is just around the corner the moment must be seized to not only and open the doors of finance to all, but also to protect those who enter, and the banks whose systems are being used by criminals like a parasite using its host. ISO 20022 is not just an IT problem or project; ISO 20022 is a small piece of XML that might just help change the world.   

No bank wants to be used to propagate crime; to be a key link in the buying and selling of people; to enable child sexual exploitation; or to facilitate money laundering by organised crime or sanctioned individuals, companies or countries. All banks want to avoid regulators’ fines, and all regulators want financial services to do more. But it can be hard. 

If you need any support in assessing the impact of the ISO 20022 migration on your financial crime systems, or if you feel overwhelmed by the new financial-crime regulations, don’t hesitate to contact us. We also provide FastStart, Monitoring, and Investigation services, with a particular focus on Modern Slavery, Human Trafficking and Child Sexual Exploitation. Finally, if you have any questions, comments, or topic requests, feel free to leave a comment below.  

If you need any support in assessing the impact of the ISO 20022 migration on your financial crime systems, or if you feel overwhelmed by the new financial-crime regulations, don’t hesitate to contact us. We also provide FastStart, Monitoring, and Investigation services, with a particular focus on Modern Slavery, Human Trafficking and Child Sexual Exploitation. Finally, if you have any questions, comments, or topic requests, feel free to leave a comment below.

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