Carmen Chu, Executive Director (Enforcement and AML), Hong Kong Monetary Authority
Good morning everyone. It’s a pleasure to be back speaking at the ACAMS conference.
For anyone familiar with nautical terms, the phrase “Fair Winds and Following Seas” is often used to wish good luck to those leaving port and heading out to sea.
But the saying is also used to express hope by people facing challenges on land.
The last time I addressed ACAMS was in 2022 when we were only just starting to come out of the heavy weather caused by Covid. So it’s wonderful to see events and conferences like this one taking place again in Hong Kong, and in which many delegates are coming from overseas. Please do enjoy everything this wonderful city gratefully offers.
It is also fortuitous on my last day at the helm of the Hong Kong Monetary Authority’s AML/CFT efforts, and while transitioning to a new role, that I am able to once again address the ACAMS Assembly and use this opportunity to reflect on the last seven years, which has had its fair share of heavy weather, and the prospects - dare I say “hope” - for smoother sailing ahead.
When I spoke in 2022, I highlighted three areas of our innovative reform programme expected to accelerate the move to next-generation approaches to AML, or what I called “AML” – Analytics, Monitoring and Link-up.
Two years later, our objectives in these areas have largely been achieved, making the financial system safer and more robust.
On Analytics, our ambitious programme of Regtech adoption combined with an increased focus on data has yielded positive outcomes, resulting in the significantly enhanced ability of banks to join the dots through network analytic capabilities and proactive detection of risk and mule account networks. Today, the adoption rate has surged to cover 90% of retail bank customers, from 40% five years ago.
On Monitoring, we have recently issued guidance, based on observations from a thematic review, to assist banks in fine tuning transaction monitoring systems. To encourage responsible adoption and make systems more effective and efficient, we have also provided a number of key supervisory expectations on the specific use of artificial intelligence and machine learning in AML work.
We have also been prioritising anti-fraud work: in September last year, all our retail banks implemented a real-time fraud monitoring system which monitors higher risk accounts in order to identify and alert potential victims of fraud. In only five months, over 1,200 customers have been alerted and as a result about US$2.3 million blocked from being deposited into fraudsters’ accounts. Following anti-fraud efforts by all stakeholders including customer education and engagement, fraud-related complaints received by the HKMA fell by 30% in the first quarter of 2024 (174 cases) over the last quarter of 2023 and by 42% year-on-year.
And on Link-up, the way we collaborate across the eco-system continues to develop and evolve, most recently in November last year with the launch of the “Anti-Deception Alliance”, which co-locates bank staff with police officers, to speed up identification and interception of crime proceeds to proactively find and alert potential victims of scams.
Indeed, the broader benefits of reforms we have been making to financial crime risk management are now being realised, but it’s perhaps too early to say that we have the wind fully in our sails. Only parts of the global AML/CFT system have started to move from being compliance-oriented to a focus on outcomes, although, as an optimist, I would say that awareness of the value of such an approach towards effectiveness is now growing in all major economies. Certainly the system in Hong Kong is showing that it can deliver on the considerable investment which has been made in recent years.
However, returning to my nautical theme, the unpredictability of the ocean is a good metaphor for life’s uncertainties, teaching us the importance of resilience and adaptability.
If there is one lesson the last seven years have taught me, it is that financial crime always evolves quicker than the system designed to combat it. The pandemic period is a testament to how finely balanced the relationship is between opportunity and risk, with online activity fueling a surge in digital fraud which continues to test our systems to their limits. Unless we can find a way to be more adaptive in our approach, innovating faster and at scale, we will not reach our destination.
Public-private partnerships (PPPs) have proven to be a very strong tailwind, reducing the travel time to our goal of high efficiency. The question for this Assembly to discuss is how can we continue to apply this collaborative approach consistently across the Asia-Pacific (APAC) region, and deliver a step change in our collective performance.
The Fraud and Money Laundering Intelligence Taskforce (FMLIT) is our version of PPP formed by the regulator, law enforcement agencies and all major retail banks. Since its inception in 2017, FMLIT was able to identify over 31,000 new suspicious accounts and contributed to the restraint or confiscation of around US$162 million in criminal proceeds. Another initiative we have embraced is the 24/7 stop-payment mechanism whereby 28 participating banks, which increased from 23 a year ago, have helped the Police to intercept about US$165 million last year alone.
A question we must be concerned with, however, is inconsistencies which exist not only between different jurisdictions but even within jurisdictions themselves, and particularly between financial institutions and designated non-financial businesses and professions (DNFBPs): how can we encourage more jurisdictions and sectors to adapt their course, adjust their sails, and navigate through the challenges of combating financial crime risk with determination.
So the question I suggest we all reflect on today is how best to reap benefits from the hard work of all these years.
Let me highlight three priorities.
First, the reforms we make to allow information sharing must not only be effective but also dynamic. That means adjusting measures if there are unnecessary duplications or material unintended consequences.
An example of this is our recent consultation on a proposal to legislate to expand the gateway for bank-to-bank information sharing from corporate to personal information. Other than Hong Kong, there are comparatively few examples globally which are leveraging on existing legal gateways, as part of a phased approach, to maximise immediate outcomes. Further expansion, when enacted, will add to the toolbox of our bank-to-bank information sharing platform - or “FINEST” - which was rolled out last June, and links five Domestic Systemically Important Banks to share information related to corporates suspected of involvement in fraud and related mule account activities. FINEST is already demonstrating its value with information already exchanged on cases involving investment, online shopping and romance scams enabling participating banks to identify and report previously unknown suspicious accounts and transaction to facilitate criminal investigations.
To scale up these initial results by increasing industry contributions, we are also working to increase the number of participating banks, as well as exploring how we can broaden the focus on other priority crime types beyond fraud, such as trade-based and high-end money laundering.
Second, we must guard against inertia, challenging our systems and processes on a daily basis. Take PPPs for example. In Hong Kong we have several of these and they have been very successful when tactical level information is shared, but in any system there is a danger that after time they may become just another piece of furniture. Through dedication and commitment, our eco-system is becoming increasingly efficient because PPP platforms are eliminating the advantage criminal networks have, while reinforcing the best of collaborative approaches. So we are solving problems together, and the future requires ongoing investment in people, data, capabilities and system transformation.
Third, PPPs and information sharing are no longer simply “nice to have”. They are an expectation and a statement that collaboration is more than a word. If we recognise that the ongoing success of these partnerships will be defined by their ability to share information, there must be agreement on best practices as well as regional and global consistency. It will be interesting to see how the Financial Action Task Force (FATF) 5th Round of Mutual Evaluations assess systems with mature PPPs and information sharing against those which do not have them and, based on that assessment, what needs to be done to support change at scale. We saw evidence of how information sharing significantly increases effectiveness and speed of risk mitigation in our recent macro analytics pilot project, and Stewart will cover those results in the regulatory panel to follow.
Let me conclude by saying that the APAC Region has a reputation for leading by example, improving outcomes and protecting our financial systems, building a safer and more prosperous future for our digital economies. That is our shared purpose, so as I transition to a new but related role, I send my best wishes for “Fair Winds and Following Seas” to all of you in future endeavours.
Thank you.
