Simoney KyriakouSep 30 2020

How should regulators respond to scandal?

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The internet has been replete with commentary on the ‘FinCen papers’ for the past week, and not without reason

As more allegations and revelations come out about banks and other institutions knowingly permitting ‘dirty money’ to circulate in the system, questions have to be asked.

Government bodies and regulators across the world are asking questions of themselves and their own financial regulatory structures

No doubt the US Financial Crimes Enforcement Network is asking questions about how the leak of thousands of suspicious activity reports ended up on the front pages of international newspapers, via the International Consortium of Investigative Journalists.

Shortly after its warning note on September 1, in which it said: “The unauthorised disclosure of SARs is a crime that can impact the national security of the US, compromise law enforcement investigations, and threaten the safety and security of the institutions and individuals who file such reports,” FinCen sought public comment on a range of questions relating to potential regulatory amendments under the US Bank Secrecy Act.

In other words, how to tighten up anti-money laundering programmes. Purely coincidental?

The US is not alone. Government bodies and regulators across the world are also asking questions of themselves and their own financial regulatory structures, as the leak and its ramifications cause necessary navel-gazing.

Quite rightly, Mel Stride, chairman of the Treasury Committee, has written a sternly worded letter to the Financial Conduct Authority, government ministers and HM Revenue & Customs following the publication of the files.

Mr Stride has asked Chris Woolard, interim chief executive of the FCA, what action the watchdog was taking following the publication of the files. Other questions put to Mr Woolard include what needs to be done to “further secure” the financial system from economic crime, and whether reports the UK was a “higher-risk” jurisdiction were a cause for concern.

As with the Panama Papers back in 2016, which exposed rogue offshore financial companies and brought down heads of state as their involvement was revealed, and the Paradise Papers in 2017, which told the world the names of the wealthy elite who were shoring their assets a little too tax-efficiently, the FinCen revelations will not die down any time soon.

Social media will ensure this is the case. Had this happened 20 years ago even, the widescale spread of information simply could not have happened. People would have read of the allegations in the print media and, within a week or so, it would all be tomorrow’s chip paper.

But social media amplifies this and provides a platform for any and all to offer their commentary on the news. It is a field day on Twitter for campaigners who have long argued their case of collusion between banks to allow dodgy dealings to go on. And whistleblowers whose cases would have been forgotten have raised their heads again to join the chorus of disapproval. 

Amid all this noise and public uproar over what is seen as yet more proof that financial services has it in for the ordinary guy and only protects the cabal of the rich and powerful, it is easy for the public’s perceptions to fall down the social media rabbit hole. 

The public can all too easily forget the great work of the FinCen papers in uncovering bad practice is evidence of two truths.

The first of these truths is that the mainstream news media is a defender of truth and an exposer of malfeasance, not an untrustworthy tool of the state. While most papers have a political bent or a philosophical leaning one way or the other, we do take great pains to make sure that what we report is fair, accurate and not misleading. 

The second truth is that financial regulation in the UK is definitely imperfect. Its scope is not holistic, its powers not unlimited and its decisions are not always right.

Take a look at the Financial Advice Market Review, for example. Here was the Financial Conduct Authority’s chance to scope out the whole advisory market and make it stronger, more resilient, and find ways to get advice, guidance and education to the whole of the UK.

What has happened, in reality, is that a few robos have launched and either died a death or gone quiet, advice is still restricted to the more affluent, the professional indemnity insurance market is problematic to say the least, and the compensation scheme lifeboat is not funded as effectively as it should be, nor working in the way it had been intended. 

That said, the FCA has been instrumental in rooting out bad practice, taking action against bad practice, creating campaigns to counteract UK scammers and even going to the courts to bring test cases so that business owners do not end up disenfranchised by their insurers. 

So while it is important for the Treasury Committee to ask questions of the FCA as to why dirty money was allowed to pass by under its very nose, it is also important that financial services companies work with the FCA and respond to its consultations and calls for input. 

Engage with policymakers in a clear and productive fashion, suggesting ways to extend the scope of FAMR and make for a tougher, tighter, more effective (and cost-efficient) regulatory environment.

Rather than simply tweet about broken regulation, help to fix it. Show that you are part of the solution, not the problem. Call out bad behaviour and tighten processes to make sure your own businesses are squeaky clean and do not be afraid to showcase your best practice.

Remember that the people reading tweets about finance are often nervous consumers. If they feel they cannot trust the regulator, the government or the banks, why should they trust you?

They are already being misled by conspiracy theories about microchips in vaccines or even that the liberal elite manipulating the mainstream media into hiding allegations of cannibalism.

Do not let them fall into the rabbit holes of fear-mongers and financial scammers, who are waiting for them on social media like wolves in sheep’s clothing.

Demonstrate you can be trusted and that you are working to improve standards not just in your own business, but also across the industry.

This way you might just help save another member of the public from becoming yet another victim of fraudsters or the sort of white-collar sharks good journalists are working hard to fish out of the depths.

Simoney Kyriakou is editor of Financial Adviser