Unleashing the Power of Data Sharing to Combat Financial Crime in the UK

Imagine a scenario in which a money launderer exploits a bank's limited visibility into their activities by opening accounts with multiple financial institutions (FIs) and systematically transferring funds between them. This fragmented view of their criminal enterprise allows them to evade detection, undermining the FIs' anti-money laundering (AML) and counter-financing of terrorism (CFT) controls.

Now, picture a world where these FIs share data, providing each other with a comprehensive understanding of their customers' activities. This unified approach to tackling economic crime would significantly improve the banks' ability to protect themselves and their customers from fraud and other financial crimes.

Unfortunately, that world remains elusive, and the barriers to effective data sharing continue to stymie progress.

For FIs to share data effectively, they must overcome several challenges. For starters, there's a delicate balance to strike between protecting customer privacy and sharing data to combat financial crime. FIs are understandably concerned about potential prosecution by regulatory bodies like the Information Commissioner's Office (ICO) if they don't handle data privacy appropriately.

Moreover, data silos within firms, often driven by technical, legislative, and regulatory factors, hinder information sharing. Inconsistent data formats, inaccurate data, and a lack of alignment and incentives within organisations further compound the problem.

Cross-border data handling also presents a significant challenge, with multiple data handling laws across borders creating a complex web of rules that FIs must navigate. All of these barriers contribute to an environment in which data sharing remains a lofty, yet largely unrealised, ambition.

In response to these challenges, The Payments Association conducted a survey and expert interviews earlier this year, examining the obstacles faced by FIs when it comes to data sharing. The findings suggest that building the necessary infrastructure and ensuring interoperability between systems are crucial steps toward enabling effective data sharing.

Meanwhile, respondents emphasised the importance of balancing data privacy concerns with the need to share data for legitimate purposes. Fear of litigation from consumers, who are increasingly aware of their privacy rights, as well as the threat of sanctions from regulators, creates a challenging landscape for FIs looking to embrace data sharing as a means of fighting financial crime.

The forthcoming 'Data Protection and Digital Information Bill' has the potential to significantly reshape the data sharing landscape. The bill introduces new types of 'Recognised Legitimate Interests', which remove the need for FIs to conduct a 'legitimate interests' assessment when processing data for specific purposes, such as detecting, investigating, or preventing crime.

This legislative shift could alleviate some data privacy concerns and allow the industry to focus on the practical aspects of data sharing, such as interoperability, standards, and the technical analysis and privacy preservation of the underlying data.

Moreover, the UK is well-positioned to lead the way in setting global data sharing standards, thanks in part to its track record in establishing security standards like the ISO 27000 family.

To realise the full potential of data sharing in the fight against financial crime, FIs must

also consider embracing innovative technical solutions. One promising approach is the use of Privacy Enhancing Technologies (PETs), which enable secure data sharing while preserving privacy. By implementing PETs, FIs can strike the right balance between sharing crucial information to combat financial crime and protecting their customers' sensitive data.

Artificial Intelligence (AI) is another powerful tool that can enhance the effectiveness of data sharing. By leveraging AI algorithms, FIs can analyse vast amounts of shared data more efficiently, identifying patterns and anomalies that may indicate criminal activities. This advanced data analysis can significantly improve the detection and prevention of financial crime, making the banking sector more resilient against such threats.

To create an environment conducive to data sharing, collaboration between public and private sectors is essential. Governments, regulators, and FIs must work together to develop a clear framework for data sharing that balances the need for information sharing with privacy concerns and safeguards against potential abuses of shared data.

This collaborative approach can lead to the development of best practices and standards that enable FIs to share data more effectively and securely, thus strengthening the entire financial ecosystem's ability to combat economic crime.

The fight against financial crime in the UK banking sector is an ongoing battle, and data sharing holds the key to unlocking a more effective and proactive approach to combating these threats. By addressing the challenges surrounding data sharing and fostering collaboration between public and private sectors, FIs can create a more robust, secure financial landscape that is less vulnerable to criminal exploitation.

While the journey to effective data sharing may be fraught with challenges, the potential benefits are significant. By harnessing the power of shared data, FIs can not only protect themselves and their customers but also contribute to the UK's reputation as a safe and secure place to invest and grow a business.

In conclusion, it's time for the UK banking sector to embrace the power of data sharing and work collectively to overcome the challenges that have hindered its progress. By doing so, FIs can create a safer, more secure financial ecosystem, better equipped to detect, prevent, and combat financial crime. The path forward may not be easy, but the rewards are well worth the effort.