Opening Keynote Speech at Fraud and Financial Crime Asia 2022 Conference


13 Jul 2022

Opening Keynote Speech at Fraud and Financial Crime Asia 2022 Conference

Carmen Chu, Executive Director (Enforcement and AML), Hong Kong Monetary Authority

Innovative ways of working in AML/CFT: Collaboration powered by data, technology and analytics

    1. Good morning everyone. I want to start by thanking Regulation Asia for inviting me to this event again to further our discussions on combatting fraud and financial crime more effectively and efficiently.   
    2. I’m going to address two points I made a year ago, and in doing so share my reflections on how we have been doing – our score card if you like. Firstly, I spoke about the need for us to question how effective we really were in tackling fraud, cyber-crime and money laundering; and secondly, the roles of data, technology and collaboration in protecting the integrity of our financial system amid the fast-changing and more complex global landscape. 
    3. Over the past 12 months, financial crime, especially fraud and cyber-crime, have continued to proliferate. The global economy has faced, and continues to face, unprecedented challenges brought about by the pandemic and developments in geopolitics.  These challenges include rises in the cost of living, climate change, and disrupted global supply chains to name just a few.  For the first time in many years, we are seeing significant inflation in many parts of the world, and at levels not seen for a generation.
    4. In times of economic uncertainty, incentives and opportunities to commit financial crime increase. Normal patterns of business are disrupted, people may be tempted to take more risks in how they handle and invest their money. Government subsidies and loan guarantees to alleviate economic pain in hard-hit sectors also become targets for the unscrupulous.
    5. Globally, fraud is still far too common, especially online fraud, which together with cybercrime, has increased sharply during the pandemic, as companies and individuals have moved more of their activities online. And much of this crime affects individuals and small businesses, who are less able to protect themselves.  Often, the victims are among the most vulnerable in society, with the elderly and unemployed often targeted by fraud and money laundering syndicates.
    6. At times like this, it is all the more important that the financial sector plays its “gatekeeper” role in the Anti-Money Laundering (AML) ecosystem in helping to identify and stop fraudsters and cyber criminals who prey on the vulnerable.
    7. It’s more than a question of compliance: tackling fraud and cybercrime and the money flows that result from them is a stability issue. Apart from the direct costs to people and businesses that fall victim to these crimes, if we don’t get a handle on this, there is a real risk that confidence in our financial and payment systems may be undermined, with potentially serious consequences for stability. Confidence and stability are inextricably linked.  It must be a priority to show that financial institutions with which the public entrust their savings, and the regulators who supervise them, do care about these threats and, more importantly, are addressing them proactively to reduce and prevent serious harm.
    8. In Hong Kong, our second Money-laundering and Terrorist-financing (ML/TF) risk assessment reflects that almost 20,000 deception cases were reported last year, up 24% from over a year ago. About 60% of fraud cases originated outside Hong Kong, mainly online fraud and accounting for a much larger share of proceeds than domestic cases.
    9. This trend is global; according to a paper discussed at the recent Financial Action Task Force (FATF) Plenary meeting, one estimate indicates that unauthorised credit card transactions, identity theft and cyber fraud are the most prevalent crime in the UK, costing up to GBP190 billion a year; in the US, US$6.1 billion was reported in losses related to internet crime last year; and in Singapore, cyber-enabled fraud cases increased to about 52% of all reported crime last year from 42% the year before. We have similar observations: credit card fraud, phishing instant messages and investment scams involving remittance have topped the list of fraud-related complaints against banks handled by the HKMA.
    10. These shared experiences show that cyber-enabled crime is complex and the proceeds often move across borders. We therefore welcome the announcement by the incoming President that the FATF would build on current work on digital transformation to further explore contemporary money-laundering and terrorist-financing risks associated with cross-border, cyber-enabled crimes, including those concerning virtual assets.
    11. We at the HKMA, in collaboration with our partners both domestically and overseas, are committed to doing our part.
    12. The thrust behind the FATF proposals is that tackling economic crime is a shared mission, beyond the capacity of individual agencies or jurisdictions. Only by enabling stakeholders to work collaboratively across the entire AML eco-system, powered by data and technology, can we deliver improved outcomes.
    13. One area that we are particularly keen to explore further is how the policy and regulatory framework can enable capacity in the system to be released from low-value activities, and refocussed where it can have the greatest impact against priority threats.
    14. Information and intelligence sharing partnerships are hugely important in this context, and in the last five years or so, have made great progress across the Asian region. Take for example the Fraud and Money Laundering Intelligence Taskforce, or FMLIT, in Hong Kong.  Since its establishment in 2017, the HKMA has been an active participant collaborating with a number of major retail banks, to share information and intelligence on fraud and other financial crime.  This forum has been extremely effective in delivering the right data that presents better opportunities for banks to stop the harm of financial crime faster.    
    15. Between its establishment and the end of last year, FMLIT efforts have led to the discovery of over 14,000 suspicious accounts that had previously gone under the radar; 91 intelligence-led law enforcement operations, 394 persons arrested, and 19 prosecutions involving 24 individuals. Perhaps most significantly, over the same period about HK$750 million in crime proceeds have been confiscated, hitting the criminals who perpetuate fraud and other crimes against bank customers where it matters most.
    16. Better intelligence and information sharing have other benefits too. More focused, actionable information helps to reduce the time spent on investigating low-quality alerts within banks and other financial institutions, which in turn reduces enquiries to customers and improves customer experience.
    17. To underline the importance of adaptability and embracing change, the HKMA has been working with the banking sector to encourage the wider use of technology in AML work, hosting our first AML/CFT Regtech Forum in November 2019; publishing a report on case studies and insights in January last year and organising an AML Regtech Lab, or AMLab – the first in a series – last November on the use of network analytics techniques in identifying fraud mule account networks.  The second AMLab will be held later this month.
    18. And we know we are on the right track – the FATF has just issued a report on data pooling, collaborative analytics and data protection, which focuses on some of the very same issues we are working on – identifying appropriate tools and technologies, and optimising their use at different stages of Anti-Money Laundering and Counter-Financing of Terrorism (AML/CFT) work.
    19. We have also made sure that our engagement on raising awareness, lowering barriers and encouraging collaboration is inclusive of the entire ecosystem; a key message for this work is that it is not only big, multi-national banks that can benefit. Smaller institutions can apply these techniques to their data and achieve very beneficial results without incurring high costs or having to recruit large numbers of data scientists.  Our second AMLab will for example focus on tools that will allow staff without sophisticated coding skills to automate repetitive parts of processes.
    20. Encouraging as the results on Regtech adoption by the banking sector in Hong Kong are, there is still more to be done. In the next 12 to 18 months, the HKMA will further this work through two new initiatives. 
    21. First, AML Suptech. Over the past three years, we have transformed how we organise and manage our data so that it better describes the real world ML/TF threats we are monitoring.  We have automated many of the processes by which we acquire and manage our data, implemented the right toolkit and developed and acquired the right human capabilities to bring us to a position where we are better able to leverage that data and through horizon scanning tools, for example, to obtain tactical and strategic insights which are central to data-driven supervision.  
    22. We are now ready to progress to the next phase in our AML Suptech journey, and will soon conduct a pilot on the application of data analytics, for the first time using granular data from multiple banks to assess sectoral ML risks. This will go beyond assessment and benchmarking of individual bank’s AML control systems, and use data from real threats to provide a more dynamic and holistic picture of where and how risks are emerging, and which parts of the banking system they are moving to.  This will help inform more timely supervisory response aimed at reducing and preventing serious harm, such as that from mule account networks for fraud and financial crime.      
    23. Second, bank-to-bank information sharing. We are supporting a number of “champion” banks to develop an appropriate framework and capability for detecting and sharing early signs of suspicion.  This new private-private partnership aims to complement the existing public-private partnership as well as public sector initiatives to enhance the preventive and detection powers of the AML eco-system.  While it is still early days, good progress is being made in addressing the legal, cybersecurity and technical challenges; the initiative reflects the understanding that data, technology and collaboration are fundamental to making AML/CFT more effective and efficient, making better use of limited resources to achieve better results in detecting and deterring the flow of illicit funds through the financial systems and, crucially, returning those funds to victims whenever we can.    
    24. A final word on collaboration, and forgive me if I come back to the most important messages. We are in a digital era and our financial system is now more easily abused for moving and hiding the proceeds of online fraud and financial crimes in particular.  Everyone – financial institutions, regulators and law enforcement – have to identify and embrace new ways of doing things.  The most important and promising of these are data and network analytics, which some authorities including the HKMA are applying to the AML Suptech space, coupled with the development of private-private alongside with public-private partnerships that enable banks to collaborate with other stakeholders in the AML ecosystem, so as to spot illicit fund flows more efficiently, share information and intelligence that is timely and leading to more targeted and actionable suspicious transaction reports, and ultimately, help protect the safety and integrity of the financial system and the wider economy.
    25. I note that we will have a very rich programme which touches on some of these topics.  Wish this event great success and look forward to fruitful discussions.  Thank you.
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