HKMA Intensifies Banking Financial Crime Reviews
A double-digit increase in mule account network incidents prompts the regulator and the police to act.
It appears that our increasingly digitalized world of deepfakes and AI is also a financial crime enabler, making it easier for perpetrators to impersonate, scale up, and deceive victims with little or no effort.
That, at least, appears to be the main take of an announcement issued on Thursday by the Hong Kong Monetary Authority (HKMA), the city police force, and the Hong Kong Association of Banks (HKAB).
Strong Increases
While reporting that incidents of deception were up by 11 percent to 44,480 in 2024, the three bodies announced a series of new measures to fight this new tech-infused crime wave, which allows offenders to «take advantage of people at speed and scale».
To wit, about 10,496 people were arrested for various forms of money laundering last year, with about 7,700 taken in or selling or letting their accounts be used for money laundering, a 13.6 percent increase from the level in 2023.
Significant Impact
Many of these new measures, however, will have a very significant impact on bank operations and compliance and control areas, something that finews.asia extensively hinted at in the past.
The most significant of them, however, is the HKMA’s announcement that it will embark on a new series of thematic reviews after sharing best practices with them related to anti-fraud and anti-money laundering systems.
Dreaded Word
Although it sounds innocent at first glance, thematic reviews are a dreaded word for bank employees, as they usually bear the brunt of the impact.
In the mid-2010s, as we previously commented, many AML-challenged institutions were rudely awakened by an HKMA wielding the ominous tool following the introduction of the new money laundering rules, with some of the more inveterate offenders having to submit to a dreaded Section 59 audit.
Fine Toothcomb
These usually involve very late evenings and weekends trawling through extensive downloads of repetitive data, management information, and committee minutes that are parsed through for inconsistencies and breaches before submission.
Afterwards, key staff members must sit through a series of interviews with auditors and go through the findings with a fine-toothed comb. Going through all that, and then fixing it, is expensive and is usually ties up a significant portion of the average international bank operational costs for extended periods.
Sharing Data
The two other measures that will have some impact are those related to information sharing.
The HKMA is introducing legislative changes that will allow banks to share information when suspicious activity is detected while expanding the use of data from Scameter+, a government app.
No Good Precedent
The regulator wants banks to use the app data and combine it with their network analytics capabilities to detect mule account networks.
But history is not much on the side of the two measures when it comes to effectiveness.
Poor Track Record
When it comes to bank-to-bank data sharing, there is very little evidence that this leads to much success, as most institutions still have incredible issues sharing their own internal data between their own businesses and across jurisdictions - without bringing an external third party into the equation.
It might have been more reasonable to review a bank’s prompt access to its own data first before taking the second, and harder step, as it is only made that much more difficult by the myriad way banks identify and store the data of individuals and entities.
Individual Accountability
You might be surprised, but if some banks don’t store all the identifying digits and full names on a city identity card in the same way, it could take months to establish specific groupings of individual clients.
That is particularly true for a mule network where most individuals and entities are engaged in legal activity most of the time, which is why they are so effective.
Don’t Lend or Sell
But the most important measure that HKMA listed out is likely the last, and thankfully, this does not impact banks.
The regulator, along with the police and the HKAB, reminded the public not to lend or even sell (who knew?) their bank accounts and that it will intensify the current level of awareness with a targeted outreach.
