HKMA Targets Effectiveness in Addressing AML, Fraud risk

HKMA Executive Director Carmen Chu highlights the need for transformation and collaboration to combat new AML and fraud challenges in the digital era.

The HKMA (Hong Kong Monetary Authority) has increasingly been leveraging data, technology and collaboration to enhance effectiveness in addressing AML and financial crime risk, according to Executive Director for Enforcement and AML, Carmen Chu.

Ms Chu was delivering the Opening Keynote Speech at Regulation Asia‘s Fraud and Financial Crime Asia 2021 conference, which kicked off on Wednesday (21 July). The event continues for the rest of the week.

Ms Chu spoke of the challenges presented by online fraud and related money laundering and how regulators, working with the industry, are helping to shape an effective response to deter, detect and disrupt new and emerging threats to businesses and individuals.

She spoke of the expansion of digital and online financial services, including the launch of eight virtual banks in Hong Kong, and the benefits this has brought. Yet, this has come with higher levels of online fraud and cybercrime, matched by the increasing sophistication of criminal networks.

In Hong Kong, there were over 15,000 deception cases in 2020, almost double the 8,000 cases from 2019. Meanwhile, customer complaints related to fraud and financial crime in the banking sector have risen by about 120 percent in the first half of 2021, compared with the same period a year earlier.

“It’s not all bad news, however,” Ms Chu said. “When we coordinate effectively, when we formulate and implement strategies for the public and private sectors to work closely together and take timely actions, we can make an impact.”

She highlighted efforts by the Anti-Deception Coordination Centre of the Police, which leads action against fraud. The Centre has intercepted HKD 6.3 billion conned from victims of phone and internet scams in its first three years of operation since 2017. This includes HKD 3 billion intercepted in 2020, which Ms Chu said would not have been possible without the close cooperation of banks.

“The HKMA’s approach is guided by our continuing commitment to international standards and best practices in how AML and financial crime risk management systems are implemented,” she said, highlighting the regulator’s efforts to raise industry awareness and explore the role that technology can play in AML work.

In this vein, the HKMA publishes various papers and reports offering guidance on Regtech use cases including for AML. By the end of the year, these resources will be made available by the HKMA in a new centralised “Regtech Knowledge Hub”. [Read: HKMA Sets Out ‘Four Actions’ to Realise Regtech 2025 Vision]

In January, the HKMA published a report entitled “AML/CFT Regtech: Case studies and Insights”, which Ms Chu describes as a “must read” for financial crime risk professionals. [Read: HKMA Publishes Cases Studies on AML/CFT Regtech Adoption]

In her speech, Ms Chu highlighted the need to introduce best practices more consistently across the global network so that AML and risk management systems are able to deliver a more effective return on the “huge investment” at the institutional, sectoral and national levels.

According to Ms Chu, the necessary changes include richer data streams like digital footprints to drive the gains from analytics; technology-enabled information sharing partnerships to deliver more responsive and actionable suspicious activity reporting; and, for regulators, data-driven supervision and industry engagement.

In May, the HKMA published new guidance for banks on integrating external source data into AML/CFT control systems to enhance effectiveness. Later this year, the regulator will launch its first interactive lab session featuring machine learning in the area of monitoring.

Ms Chu also spoke of the work of Hong Kong’s public-private information sharing partnership, known as FMLIT (the Fraud and Money Laundering Intelligence Taskforce). Since its 2017 launch, actions taken by banks through FMLIT have identified over 11,000 bank accounts, previously unknown to law enforcement agencies, which led to the restraint or confiscation of about HKD 700 million in crime proceeds – mainly from investment scams and other frauds.

One FMLIT member bank used digital footprint data such as IP addresses in its analysis to identify a network of mule accounts linked to a fraud syndicate. In another example, one virtual bank used data related to customers’ mobile devices to identify a network of mule accounts which led to dozens of accounts being closed. The subsequent police investigation safeguarded more than HKD 10 million worth of assets, Ms Chu said.

To bolster effectiveness in the digital age, the HKMA is also implementing a series of changes to better leverage the latest technology in its supervisory work, and building capacity to allow it to adopt new technologies and techniques as they emerge. A key area of focus in this work is to upgrade the HKMA’s ability to source, store, process, and use data to enhance and support AML/CFT supervisors. The regulator has been investing in specialised talent – data specialists – to help drive this initiative.

“The improvements we are making in our data, technology and people will be closely aligned to the outcomes we want to achieve in combatting financial crime,” Ms Chu said, also pointing to importance of international cooperation to combat cross-border criminal syndicates and illicit fund flows.

“Transformation is needed for AML regulators as much as for banks, and maximum benefits will be gained through public-private partnership and engagement,” she said. “Those who are data-driven, technology-led and collaborative will do the best in meeting new challenges.”

Access Regulation Asia’s Fraud and Financial Crime Asia 2021 Conference for free here

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