Tag: Coronavirus

Opportunity Knocks: How to Protect Against Money Laundering During COVID-19

Opportunity Knocks: How to Protect Against Money Laundering During COVID-19

The current crisis created a golden opportunity for fraudsters. A heady cocktail of disruption to business processes, financial pressures and multiple online transactions mean the stage is set perfectly for cyber criminals and money launderers. Regulators, therefore, have been issuing guidance to companies about how they can reduce their exposure.

The Institute for Chartered Surveyors acknowledges where some of the biggest risks will come from. Their guidance document on anti money laundering states:

“In particular, firms should consider whether the current economic climate may make them or their customers more susceptible to financial difficulties or other pressures, thus creating risk and potential weaknesses for criminals to exploit.”

In France, guidance from the Commission de Surveillance du Secteur Financier (CSSR) has identified a number of activities terrorists and criminals can exploit, including:

  • Online payment services
  • Clients in financial distress
  • Mortgages and other forms of collateralised lending
  • Credit backed by government guarantees
  • Distressed investment products; and
  • Delivery of aid through non-profit organisations.

The FCA’s revised business plan for 2020/21 places a firm focus on mitigating problems caused by COVID-19 including the heightened vulnerability to cybercrime and money laundering. It expressly confirms that it will continue to take enforcement in this area. It is also consulting on extending its Financial Crime Data Return to strengthen risk-based supervision in this area.

Stay alert

All the guidance from various authorities hammers home similar messages. The risks are higher and firms must have effective systems and controls to detect and mitigate the risk of money laundering. To avoid enforcement action, firms will have to be able to point to documentary evidence which shows they have taken necessary steps.

Here are the key lessons that firms can take away from this:

  • Identifying weak points: As institutions shift to work from home models, their risks multiply. They will be moving much more data across the cloud as their workforce shifts to a predominantly work from home model. They must maintain system security by establishing clear protocols and endpoint security.
  • Maintain oversight: Disruption to business processes must not be permitted to compromise monitoring and oversight of transactions. This may become more difficult due to the expected increase of online payment transactions as well as interruption to their regular working patterns.
  • Managing delays: The FCA acknowledges that disruption may force firms to prioritise or delay some operations such as customer due diligence. However, where this happens, they must show they have taken a risk-based approach. For example, delays to due diligence to high risk customers should be avoided.
  • Verifying client identity: Travel restrictions can make it more difficult to verify the identity of clients. However, firms should be able to ensure numerous verification procedures are carried out remotely. For example, by accepting scanned documents by email or asking clients to submit digital photos to compare with other forms of ID.

COVID-19 is a gift for a fraudster. It hinders the ability of financial firms and regulators to maintain oversight and to safeguard against the possibilities of fraud. By understanding the challenges and what alternative options are available to them, firms can minimise the interruption to their processes and strengthen their defences against criminals as much as possible.

FCA Warns Banks on Customer Communications - Waymark Tech Blog

FCA Warns Banks on Customer Communications

The COVID-19 crisis has created numerous challenges for the financial sector, but one which often goes unseen is the logistical challenge of maintaining communication with customers. With lockdown in place it is difficult for banks to maintain the speed and efficiency of paper based communications. However, the FCA has reminded the sector of its obligation to do everything it can to comply with communication obligations.

Back in March, the regulator warned financial advice companies not to work in the office, and to avoid face to face contact with clients. Alternative arrangements were to be made online, but this left a gaping hole for those customers who, for one reason or another, were unable to access online services. Maintaining a business as usual service for these clients is proving to be a major problem.

In its recent guidance, the FCA is keen to ensure that despite these problems, offline clients are protected as much as possible.

Notifying the FCA of issues

While the regulator still expects firms to try and comply with paper-based requirements, it acknowledges this may not be possible in every case. There will be flexibility with timescales and they will be more understanding. However, they do expect firms to demonstrate what steps they have taken to minimise the impact as far as possible and to notify them of any problems they expect to encounter by emailing firm.queries@fca.org.uk

For example, a firm would need to collect and send out paper documents as often as possible ensuring that while the service might be slower than normal, offline customers do not miss out. Funds should be returned to clients as quickly as possible if a delay means they cannot proceed with the transaction.

Clear communication

At times of uncertainty, transparency becomes even more important than usual. Firms will be required to provide regular updates about how they intend to treat incoming and outgoing post. Customers should be updated on evolving market conditions and shown how they can check their statements if they arrive late.

Face to face alternatives

Face to face meetings for issues such as suitability assessments may not always be possible. However, the FCA has urged companies to investigate alternative options such as phone conversations or online due diligence checks. Firms should send out the results of any assessment either online or through other means.

The FCA has experienced plenty of problems of its own. Back in April, it admitted it could be many months before it is able to address its key regulatory priorities. It is making its own adjustments and has said it may have to redraw its business plan to take into account the evolving situation.

Maintaining business continuity is an issue for all businesses. While online technology, makes it possible to deliver more services remotely, it is the small minority who can’t access the internet who are at risk of being disadvantaged. Inevitably, these people are more likely to be older or more vulnerable and will be even more adversely affected by delays to their services. The FCA, then, is striking a balance between being understanding for customers but keeping up the pressure to protect those clients who may suffer.

Protecting Against Cybercrime During COVID-19 - Waymark Tech Blog

Protecting Against Cybercrime During COVID-19

Cyber criminals are “making hay while the sun shines” during the pandemic, but regulators promise to be more understanding. What does that mean in practice?

An uncertain economic situation, financial volatility and a workforce working from home all make for a cyber criminal’s dream come true. The number of threats are growing and vulnerabilities are widening. Keeping data secure is more difficult than ever and this may have a number of compliance and regulatory issues for firms.

Home and mobile working

Most companies have dramatically upped their work from home provisions and they have done so with relatively little warning. Most professional people are almost as well connected at home as they are in the workplace. Broadband speeds are fast and people’s personal computers are generally high spec.

However, home networks will usually not be as secure as a company’s. In the home, you will have increased the number of endpoints coming into your central system which is like making lots of holes in the walls of a building. Even the most secure operation can become compromised.

In March, the UK’s National Fraud and Cyber Crime Reporting Centre reported that Coronavirus related frauds rose by 400% in March. This was said to be linked to the increase in home working. They have issued fresh guidance about the steps firms should take before moving to a work from home model.

Compliance issues

Despite these challenges, the Information Commissioner’s Office has confirmed that firms will continue to face the same reporting obligations as always under GDPR. Privacy rights remain ‘paramount’ according to the watchdog which means breach notification rules still apply.

However, the regulator has said they will allow for flexibility given the unprecedented situation we now find ourselves in.

In a statement, the UK’s Information Commissioner, Elizabeth Denham said:

“We see organisations facing staff and capacity shortages. We see the public bodies facing severe frontline pressures. And we see the many businesses facing acute financial pressures. Against this backdrop, it is right that we must adjust our regulatory approach.”

elizabeth denham

What this means in practice is that the regulator will be more understanding when considering action. It says it understands the operational challenges confronting companies including staff shortages, reduced operational capacity and financial constraints. They use this, they say, to foster an ‘empathetic and pragmatic approach’ throughout the pandemic including how enforcement powers are executed and what technical advice they take.

So what does this mean in practice?

Although they are being more flexible, data protection is still vital which means the rules around breach notification still apply. Any organisation which suffers a breach will still have to report it to the ICO within 72 hours of discovering it. Even so, they have ceased all audits and if the problem is caused as a result of the pandemic, they will take this into account. The commissioner appears wary of being seen to chase healthcare organisations while they are trying to save lives.

Any organisation which processes data will still have to pay their annual fee to the ICO, but will not prosecute any organisation failing to do so if they can provide evidence that they cannot pay due to the fallout from the pandemic.

Last but not least, any fines issued are likely to be lower, for all breaches. The ICO says it takes affordability into account before issuing any fine. Given the impact on companies finances, therefore, that is likely to mean any fine issued will be much lower than before the coronavirus outbreak.

Most importantly, this is no get-out-of-jail-free card. The ICO is being more flexible and it will be more understanding, but a company must still meet its obligations to safeguard data and report breaches. Failure to do so will still result in a fine.

More importantly, failure to take adequate measures will have much wider reaching consequences than just the wrath of the regulators. The ICO may be more understanding, but there’s no guarantee customers will be.

The move to a home working situation also makes your systems and the personal data of your customers more vulnerable. The reputational and financial impact of a hack will be just as high as always.

Coronavirus Gives SM&CR its First Real Test - Waymark Tech Blog

Coronavirus Gives SM&CR its First Real Test

COVID-19 is proving to be the first real test of financial regulations introduced since 2008 with the Senior Managers and Certification Regime in the front line.

Speaking to the Financial Times, the FCA’s interim Chief Executive, Christopher Woolard has suggested that the Senior Managers Regime could give the regulator more weapons in ensuring corporations continue to behave ethically throughout the crisis.

Although he admitted that the FCA had little power to take action against those lenders who did not treat customers fairly, he suggested the regime did give the regulator an option to ensure fair treatment of lenders.

These rules allow regulators to take action against senior managers based on their conduct, including fair treatment of customers. With all commercial lending being unregulated, this will be the only weapon the regulator has to put pressure on banks.

However, since its introduction, the FCA has been criticised for taking relatively little action. After three years, it was only in August 2019 that it secured its first conviction when Barclays Chief Executive Jes Staley was jointly fined £642,000 by the FCA and PRA for his response to an anonymous whistleblower letter.

Since then, the regime has been extended from the banking sector and across all authorised firms, but its impact is still one which exists in the fears and imaginations of senior managers rather than in actuality. However, this crisis could be an opportunity for SM&CR to play a significant role.

Since the outbreak of COVID-19, there have been a number of complaints about how banks have been treating their customers, especially in the way the Government-backed loan scheme has been rolled out. The Federation of Small Businesses has been among those raising concerns about how the loan scheme is being implemented.

Although pace has picked up, approval rates are lower than with commercial lending despite the number of companies facing difficulties. The FSB has called for reassurances from the regulator that the banks are not putting profits before people.

The FCA has written to the banks reminding them of their responsibility to treat borrowers fairly at this stressful time, but beyond that it has relatively few direct powers. SM&CR could offer an alternative approach, and Woolard admitted this period would prove to be a test of the scheme.

Nonetheless, the difficulty they’ve experienced in securing convictions so far suggests they might face an uphill battle. The problem for the regulation is that it can be difficult to attribute the action of a company to a single individual. The burden of proof lies with the FCA and, in many cases, this is proving too high a hurdle to clear.

So far, then, SM&CR has been used as an abstract threat – a tool to place more pressure on individual managers to take greater responsibility for good conduct. Whether this will be enough remains to be seen.

COVID-19 is the first period of great stress for the financial sector. It is at these moments that corporate responsibility and regulation comes under pressure. It’s also at moments like these that the cracks show and problems in the existing system are there for all too see. This in itself could serve as a warning to any corporates who do not heed the FCA’s letter and treat customers fairly.

Even though the regulator’s powers may be limited at present, if they are not satisfied by the actions of lenders during this time, they will be more likely to step up their oversight.

This could come in the form of enhanced regulation and stricter rules in the future.

Financial Conduct Authority Updates Action on Coronavirus - Waymark Tech Blog

Financial Conduct Authority Updates Action on Coronavirus

As the UK goes into lockdown the FCA continues to update its guidance and work out how it can support the financial sector and those who rely on it through what is now undeniably, an unprecedented crisis. With questions about trading practices, vulnerable customers and reporting, the FCA has issued a series of statements over the past few weeks outlining its expectations.

Short selling

The FCA has not followed the examples of other countries such as Italy and Spain in banning short selling. Both countries have banned the practice in order to counter market volatility as the virus spreads across the world. Experts in the US have also argued strongly against short selling. However, the FCA claimed there was no evidence that it was behind the recent turmoil in the market. Indeed, they said short selling remains a useful tool in investment strategy, allowing companies to manage risks by taking long and short positions.

Vulnerable clients

Its work on vulnerable clients has been shelved as it postpones all non-essential work in the face of the pandemic. Publication of its guidance on vulnerable customers will be placed on the back burner for the time being.

However, the FCA has stepped up pressure to prevent repossessions in the fallout of the crisis. The regulator’s guidance says lenders should offer a three-month payment holiday in the face of the spreading pandemic. It should be granted where homeowners are experiencing payment difficulties because of COVID-19. This can apply where a customer first asks for leniency or if a lender feels they qualify for a break. The Government has said there is no expectation under its guidance for a lender to fully investigate the circumstances surrounding a request for a payment holiday.

“We are making it clear that no responsible lender should be considering repossession as an appropriate measure at this time.”

Christopher woolard, interim chief executive of the fca

Delayed disclosure

The FCA has urged companies to delay publication of their preliminary results for at least two weeks.

“The unprecedented events of the last couple of weeks mean that the basis on which companies are reporting and planning is changing rapidly.”

Financial conduct authority

Companies, it said, should give due consideration to the impact of the virus and that the events of the last couple of weeks meant that time tables set before the virus would mean there would be little time to achieve this.

It says it is in talks with the audit regulator, the Financial Reporting Council (FRC) and the Bank of England’s Prudential Regulation Authority (PRA) about a package of measures to ensure companies take time to prepare appropriate disclosures. The FRC, for its part, has also asked companies to delay disclosing financial reports rather than produce substandard audits.

This is uncharted territory for the entire sector. The FCA’s role in this is to reduce turmoil as much as possible and put pressure on companies to maintain sustainable and responsible policies which do not cause additional stress and anxiety to their customers.

What Will Coronavirus Do to the Economy? - Waymark Tech Blog

What Will Coronavirus Do to the Economy?

The world has never seen anything like it, at least not in living memory. Millions of people in quarantine, businesses shut and economic activity brought to a standstill. In the short term, the impact is enormous, but once the crisis abates and the world has recovered, what will it mean for the economy, working practices and climate targets?

Short term

The stock markets have crashed. The FTSE 100 Index is down by 34%, Dow Jones by 31% and the Nikkei by 27% (at the time of writing). Both the Dow and the FTSE have witnessed their worst days since 1987. Investors agree that the virus could have a catastrophic impact on the economy.

To compare it, let’s look at the impact of another outbreak, SARS, in 2013. It impacted thousands of people around the world and shaved two percentage points off China’s GDP, according to various estimates. However, the COVID-19 coronavirus is already ten times as wide-spread as SARS.

Most estimates compare it to the financial crisis of 2008. According to IMF, the fallout will be at least as severe as 2008. Even so, it says it still expects a recovery in 2021. So far, 80 countries have asked the IMF for emergency finance and governments around the world are taking extraordinary measures to stabilise the economy. The UK has injected more than £300bn, into the economy to stabilise businesses and worker pay, and have effectively nationalised the entire private sector by agreeing to guarantee 80% of people’s pay. Germany is preparing a €500bn package and the US has announced their $2 trillion stimulus bill. Central Banks have slashed interest rates with the UK reaching a record low of 0.1%.

The measures are extraordinary and it is remarkable how quickly economic orthodoxy has been abandoned. Ideas such as basic income or quantitative easing for the people which, until a short time ago, were on the fringes are now moving into the mainstream.

But the real question is: what happens next. When the economy finally picks itself up, what will it look like?

Financial regulation

The immediate impact for regulators is to abandon so called non-essential work to focus on the more pressing matters in hand. Both in the US and in the UK, regulators have been urging relief for borrowers with payment holidays.

They are considering loosening some of the tighter rules on banking lending. EU regulators are likely to relax their attitudes towards non-performing loans and US regulators are considering relaxing liquidity rules on banks to ease the financial pressures on them during the COVID-19 outbreak. The aim is to encourage banks to make loans to companies who will currently be seen as an economic risk.

Environment

Another question will be what happens to targets for climate change. In the immediate term, COVID-19 may be an unexpected boost in countries’ attempts to hit their Paris targets. The virus has shut down industrial production, temporarily bringing about a dramatic reduction in pollution levels. Images from the European space agency show a dramatic drop in pollution levels over China compared with 2019.

Paul Monks, Professor of Air Pollution at the University of Leicester, has predicted that there will be some crucial lessons to learn.

“We are now, inadvertently, conducting the largest-scale experiment ever seen,” he said.

Paul Monks

“Are we looking at what we might see in the future if we can move to a low-carbon economy? Not to denigrate the loss of life, but this might give us some hope from something terrible. To see what can be achieved.”

Paul Monks

The reduction in air pollution could be beneficial for asthma sufferers and may reduce the spread of some diseases. Already, reports suggest water sources are cleaner and the canals in Venice are clearer than they have been in living memory.

The question will be:

Is this a temporary slow down and will things return to normal after the outbreak?

The slowdown has been remarkable. The airline industry, one of the heaviest producers of emissions is in freefall. Oil use is dramatically down. It may take years to recover to pre-crisis levels.

On the other hand, during past economic crises, emissions have been quick to rebound. However, with prudent management of stimulus funds and permanent changes in behaviour this crisis could be the disruption the economy needs. Companies are working virtually, travel is being reduced. The world is about to discover that it can work much more effectively remotely than it imagined.

Coronavirus has already had an incredibly disruptive influence on markets, behaviours and attitudes. It will change the way businesses operate and has given a timely boost towards climate targets. Whether those changes will prove to be permanent, time will tell.

Coronavirus: Regulators Scramble to Prop Up Financial Sector - Waymark Tech Blog

Coronavirus: Regulators Scramble to Prop Up Financial Sector

Financial regulators are formulating plans to cushion the blow of coronavirus including assessing contingency plans, fiscal stimulus and easing the pressure on borrowers.

The arrival of coronavirus has sent tremors through the stock market. Wall Street experienced its worst day since 2008 and the ECB has warned of a collapse on a scale of the financial crisis. It is both a global health and economic crisis and regulators around the world are scrambling to mitigate its impact.

China

In China, which has had more than 80,000 cases and over 3,000 deaths, the virus is already having a major impact on the financial system and regulatory strategy. Until now, the China Banking and Insurance Regulatory Commission, would scale back its war on bad loans.

Under the leadership of Guo Shuqing, the regulator has worked hard to tackle problems caused by bad loans and excessive leverage. He has been extremely successful but that war will have to wait. The regulator has said that new bad loans created during this crisis should not be considered non-performing loans.

Italy

In the second worst hit country, Italy, the focus is also on reducing the pressure on loans. Regulators are planning to introduce a widespread moratorium on debt repayments for consumers and businesses.

The announcement which was made by Italy’s Deputy Economy Minister, Laura Castelli, comes after the entire country was placed under lock down. The Government has also promised to inject €10bn into the economy.

UK

“Keep calm and drink tea” has been the message from the Government who seem happy to “take the virus on the chin”. However, the FCA is taking more proactive action. Earlier in the month, staff worked from home as the city watchdog ran a drill to test its readiness.

The regulator is also focusing on firms’ contingency plans. In an update on its website, the FCA said it was working with the financial services sector, HM Treasury and the Bank of England to review their responses to the virus.

This will include a review of the operational readiness of firms to assess any operational risks to day-to-day operations.

Meanwhile, at his confirmatory hearing for the Bank of England position, outgoing Chief Executive of the FCA, Andrew Bailey, said Coronavirus was the “first most pressing issue we face” and that it was evolving in “unprecedented and unexpected fashions.”

The severity of the situation, he said, suggested that at some point the bank may have to “focus on providing supply chain finance to ensure the shock effects of the virus are not damaging to too many forms of activity and we will have to move quickly to do that.”

That stimulus wasn’t long in coming. Announcing his budget, the Chancellor, Rishi Sunak, announced a stimulus package totalling £30bn including £7bn for businesses and families and £5bn for the NHS. There will also be changes to sick pay regulations with statutory pay available from day one of self-isolation.

USA

Regulators in the States have called on banks to ensure customers and members who are affected by the virus get the funding they need. In a joint statement, multiple agencies including the FDIC, Consumer Financial Protection Bureau, the Conference of State Bank Supervisors, the Federal Reserve, National Credit Union Administration and Office of the Comptroller of the Currency, said they would provide regulatory assistance to financial institutions, under their supervision, in meeting their financial needs.

EU

The ECB’s Christine Lagarde has called for more coordinated action between European states on the crisis. Speaking by video to European leaders, she warned that without urgent action the virus could cause an economic collapse on the scale of 2008.

The EU is also considering using flexibilities in its state aid rules which are allowed in exceptional circumstances. Officials are drafting a list of targeted options which members could support those states hardest hit by the coronavirus.

Among the schemes which may require state aid clearance from the commission are discounted government loans, tax credits, or deferral of tax payments.

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