Financial Inclusion – The Key To Preventing Financial Crime

Fatihah Ramzi, DigitalCFO Asia | 21 November 2022

DigitalCFO Asia spoke with Leslie Bailey, Vice President Of Financial Crime Compliance, LexisNexis® Risk Solutions to understand the key role of financial inclusion in preventing financial crime.

The financial services industry is changing rapidly—market trends come and go, yet threats are constantly evolving. To stay ahead, financial services organizations require innovative technologies that offer a holistic view of the customer, optimize resources, and mitigate risk. 

LexisNexis® Risk Solutions released its 2022 Financial Transparency and Inclusion Report, which shed light on the commitment of financial institutions to financial transparency and inclusion, the hurdles and compliance challenges of achieving the twin goals. The report revealed that institutions in APAC generally expressed greater support for financial inclusion, with Singapore achieving 98% of financial inclusion rate. 

To find out more about how financial inclusion plays a part in staying ahead of financial crime, DigitalCFO Asia spoke with Leslie Bailey, Vice President Of Financial Crime Compliance, LexisNexis® Risk Solutions

Lack Of Financial Transparency Affecting Business’ Ability To Stay Ahead Of Financial Crime

If companies want to succeed today, they must understand how important financial transparency regulations are. With the need for transparency extending from individuals to institutions and mounting demand on businesses to be honest with stakeholders including investors, employees, suppliers, governments, and customers, transparency has acquired a whole new meaning.

In addition to exposing hidden social and economic inequities, the epidemic sparked concerns about how businesses will address climate change in the race to NetZero. In response, businesses in the private sector will need to prove to investors that they can strengthen their resilience to crises in the future and to the general public that they are dedicated to long-term, sustainable value creation and a carbon-neutral economy.

Companies need to comprehend the nature and function of banking partnerships. This includes the capacity to confirm people’s identities and the ownership stakes they have in other businesses. The accuracy of that information must be regularly checked. There is a narrow window for evil actors to infiltrate the financial world undetected due to the speed at which information changes.

“Data and updates should be real time and accurate to help businesses stay ahead of financial crime,” says Leslie Bailey, Vice President Of Financial Crime Compliance, LexisNexis® Risk Solutions.

Steps Companies Can Take To Improve Their Ability In Identifying Customers And Their Risk Profiles

When onboarding new clients, a customer risk assessment is essential. It makes sure that high-risk persons are located and that the proper cyber security precautions are implemented. A customer risk assessment should take into account a number of criteria in order to comprehend the dangers that each client poses. These include confirming a customer’s identification, taking into account how to interact with them (the products and services they use, the kinds of transactions they do, and how frequently), and taking into account the locations the customer is connected to.

Finding the risks to which a company may be exposed during a business relationship or a one-time transaction is the assessment’s primary goal. A customer risk assessment ought to be thorough the more complicated this interaction is. Businesses will be better able to choose the appropriate level of customer due diligence (CDD) if they are well-informed. A customer’s behavior should be periodically reviewed, especially if it departs from their risk profile. Businesses should avoid entering into business relationships or should end such relationships if they are unable to apply the proper amount of CDD.

“To better identify true risks, companies can look at combining physical data, which has been the  traditional method of customer identification, with digital insights or information,” says Leslie Bailey, Vice President Of Financial Crime Compliance, LexisNexis® Risk Solutions.

This way companies open the aperture on the networks of associated individuals and entities and offer themselves the opportunity to better identify risks. 

The Primary Cause Of Businesses Not Being Able To Achieve Their Financial Inclusion Objectives

“Organizations need the buy-in of their executive leadership and a commitment to financial  inclusion,” says Leslie Bailey, Vice President Of Financial Crime Compliance, LexisNexis® Risk Solutions.

That means that an organization may have to expand its risk appetite in some  circumstances to promote the desired level of inclusion. Beyond that, access to data on  individuals who may not have a traditional history inhibits financial inclusion in some ways. For  example, consumers or small businesses may have a thin credit file. This limited information  pushes financial institutions to balance their desire to be inclusive with meeting their regulatory requirements.  

If APAC Continues To Not See An Urgency To Make Digital Financial Inclusion A Top Priority, What Will Happen To Businesses In The Next 5 Years? 

Digital adaptation is non-negotiable for financial businesses; certain APAC markets have led the  way in adapting. The time is now for APAC businesses to seize the opportunity that this presents to ensure that what was once viewed as an alternative method becomes standard  practice. 

Significant consideration of how to integrate digital insights into processes that help strengthen transparency around existing customers widens the doorway for those who may not have otherwise had access. As a result, businesses expand their own potential to contribute to  a more inclusive society as well as capture more share of the market and evolve their business  as the world evolves.