16th October 2015
This week’s round up of news for the compliance, risk and legal sectors in financial services
The Times of India has reported on a rise in job frauds that has led to police requesting job portals to display a disclaimer at the bottom of their homepage, warning people about such frauds. S Harinath, assistant commissioner of Police (Cyber Crime), Rachakonda, has said that ‘Most of the big firms post vacancies on their websites. Jobseekers should not believe what the caller is saying and check with the company HR’. These fraudsters rent a small place and hire people to go through various job portals, they extract the contact details of jobseekers and later send them fake emails ‘offering’ them jobs. From examples, a consistent trait of these frauds seems to be asking for money for a phone interview, one victim is reported to have lost Rs 5.5 lakh which equates to roughly £5,600.
Similarly, the Irish Independent have reported that cyber criminals are using social media to hack into bank accounts. According to the head of the Garda National Cyber Crime Bureau, ‘criminals are using social media to check when customers are contacting banks about problems, and then posing as the bank in order to hack into people’s data’. De Supt Michael Gubbins is expecting that cybercrimes will become increasingly hard to detect in the coming years, an example could be due to the increase in use of fileless malware, that sits on the computer’s RAM making it harder to detect. Also, the increasing usage of cryptocurrencies has seen a new type of cybercrime emerge in the form of ‘crypto-jacking’, whereby hackers infiltrate a computer and use it to attempt to steal the user’s digital currency. As a result of this, De Supt Gubbins is urging people to make sure they stress-test their cyber-security systems on a regular basis.
This week the journal Asia Asset Management informed us that the ‘Regulators in Singapore and Indonesia have signed a memorandum of understanding that is aimed at sharing trends in financial technology and fostering innovation in financial services’. They are also set to create a framework in order to help fintech firms better understand the regulatory regime and opportunities available in each jurisdiction. This pact will promote joint innovation between both countries and also give the Southeast Asian neighbours an opportunity to learn and collaborate on building the ‘future of finance’.
Alliance News has reported of the disruption likely to be caused by a no-deal Brexit and that a ‘failure to reach a withdrawal agreement could impact on trillions of pounds of financial contracts between the UK and EU’. One of the main concerns is what would happen to the continuity of cross-border financial contracts between the UK and EU as the majority of these are incredibly important insurance and derivatives risk management tools. Conor Lawlor in response to this has said that a lot of these contracts will not fall away because they are essentially still based on commercial or corporate law and that intervening in those contracts is difficult to do as it would be considered a regulated activity. The best case scenario would be increased costs, however, at the worst case it would mean that businesses can’t function because the counter-party cannot intervene and make the contract work as it should.
Another concern of a worst-case scenario no-deal Brexit is that paying out some pensions could become illegal. The Association of British Insurers has warned that a ‘no-deal scenario would leave insurance contracts in ‘legal limbo’, with firms unsure if they could legally pay claims for contracts drawn up before Brexit, which would be paid out in EU countries’. This issue could affect pensioners living in countries with insurance-based pensions.
The Guardian reported this week that the use of Artificial Intelligence within the company Amazon has been scrapped, due to the results of selecting workers based on their CV’s consistently discriminating against women. This decision has highlighted an important factor about machine learning being that no matter how fast they learn, they can only learn from the data presented to them, and if this reflects historic patters of discrimination then the results with perpetuate this. The program at Amazon was taught to discriminate against women from the records of job applicants that had been previously hired; ‘the machine behaved as though being female were a sign on inferiority, just as the industry it learned from had done.’ Machine learning and the use of AI can expose prejudices embedded in our use of language that we may not have noticed before. Therefore, it is essential that moral and legal responsibility be attached to the human parts of the system and that the companies, people and government be held accountable for the consequences of its use.
Smart Brief has described the challenges faced in fintech regulation and reported on the discussed topics of the Fintech Ideas Festival Policy Series in Washington, D.C.
Craig Phillips, counsellor to the secretary of treasury has said that there has been an ‘increasing number of nonbank financial institutions since 2008, and he thinks innovation will continue to accelerate’. Paul Watkins, head of Consumer Financial Protection Bureau’s Office of Innovation explained that they are revising their trial disclosure program in order to encourage disclosure. ‘Groups will be able to apply for trial disclosure so that multiple companies can share initial costs’, and in order to keep federal regulations from hindering state efforts to promote innovation, there will be an involvement of state senators to fast track federal approval for organisations that are already approved through state programs.
Innovation in financial technology is an important goal for the US but regulatory uncertainty is currently a considerable challenge for fintechs. OnDeck’s Christian Spradley added that ‘there’s an educational gap between what fintechs can do and what regulators understand’ which causes frustration on both sides. An easy to understand source of information has been called for by FS Vector’s John Collins, as well as an open dialogue between all parties to create a ‘culture of compliance’.
The Insurance Journal has reported that London is still attracting financial services investments despite the cloud of Brexit. Last year London secured 55 inbound foreign investment projects, almost double the amount than Dublin, Paris, Frankfurt and New York. Catherine McGuiness, city of London policy chair, has said that ‘The UK leads the world when it comes to exporting financial services and we have a number of strengths that appeal to investors’. However, the foreign investment flow can quickly shift so it is important to secure a positive Brexit deal in order to provide confidence for the sector. To date, the tally of financial jobs that have moved to new EU Brexit hubs from London has been much lower than initially expected after Britain voted to leave in 2016.
RANE has announced the results of the 2018 RANE Compliance Survey this week, it was designed to ‘gauge perceptions of how important specific compliance and culture elements are to developing an effective compliance program, and measure how well their companies are aligning themselves to these rankings’. The results of the survey show a divide between what companies perceive to be important and how they rate their corporate culture on these factors. Each factor in the survey received a higher average importance score compared to the average rating assigned by respondents and the biggest difference was the importance of corporate culture and its effectiveness in practice. Serina Vash, Executive Director GRC at RANE commented on the findings of the survey and said that it ‘highlights that leadership integrity is a key factor in both creating a positive corporate culture and contributing to an effective compliance program’. A lack of confidence in leadership and management matters can pose significant operational, reputational, financial and human resource risk.
International Investment has reported that over two million Hongkongers have been affected by cybercrime this year, and that the number of fraudulent banking websites in Hong Kong has seen a rapid increase. In August this year there were 15 reports of cybercrime incidents, compared to only two cases in the same month a year ago. Police figures also show that in the first year such offences started to be tracked (2005), 653 cases were recorded, this number skyrocketed to 5,939 in 2016, with HK$2.3bn lost that year.
Hong Kong’s rate of cybercrime was higher than Japan (18%) and Singapore’s (33%) last year; and at least 2 million internet users were a victim of cybercrime, losing $28 on average and spending 19 hours trying to fix the problem.
Binance has signed a deal with AML compliance firm Chainalysis, to better ensure meeting anti-money laundering and know-your-customer requirements. Coin Geek reports that Chainalysis expects many other cryptocurrencies to follow in Binances footsteps to build a world-class AML compliance program that both builds trust with major financial institutions and satisfies global regulators. They also claim that their software (Chanalysis KYT), which works by ‘pattern recognition, proprietary algorithms and millions of open source references to identify and categorize thousands of cryptocurrency services to raise live alerts on transactions involved in suspicious activity’, is the only real-time transaction monitoring solution for cryptocurrencies. The company has over 150 worldwide clients including global law enforcement agencies and regulators.