During our regular ‘Ask Me Anything’ sessions, the entire Napier team is honoured to spend a virtual hour with a heavyweight in the world of AML, compliance or enforcement.
These sessions are an incredible learning opportunity, providing us with highly personal experiences and insights into life on the front line of fighting financial crime. Much of what we talk about is sensitive but we’ve also been proud to be able to share many highlights over the last year.
On July 5th we spoke to Nizam Ismail, CEO and founder of Ethikom Consultancy, a compliance-focused consultancy based in Singapore. Nizam has over 27 years of experience in financial services, regulatory compliance and litigation. The work he and his company does is focused on helping financial services businesses navigate and comply with regulations to grow in one of the most heavily regulated industries.
Nizam kindly shared his knowledge and thoughts with us from his own industry experience. We’ve included some highlights below:
1. Financial regulations vary dependent on location
Globally, regulations and regulatory bodies vary dramatically.
In Singapore, for example, the central bank and regulator have always been combined into one body, the MAS (Monetary Authority of Singapore), whereas many other countries (like the US or Malaysia) have several regulatory organisations which are separate and could lead to turf wars, where regulators may not share information or collaborate with one another.
There’s not necessarily a ‘right’ or a ‘wrong’ way to do things. For instance, Singapore often comes under criticism for not having regulators who are independent from the Government.
It’s key to remember that the approaches taken by regulators does differ between countries, as a regulatory body will be subject to differing legal traditions (e.g. common law vs civil law) and pace of market development of the country it operates within.
In some places, a lack of regulation means that you could not do certain things until it is regulated (like trading in Cryptocurrency), whereas in others you’re able to participate even if the industry is unregulated.
2. Cryptocurrency as an example of differing regulatory approaches
Like any other industry, cryptocurrency has been subject to different approaches to degrees of regulations across different territories.
For example: in Singapore, cryptocurrencies began being regulated just last year in 2020 as digital payment tokens under the Payment Services Act. In Malaysia, cryptocurrency is instead regulated as securities by the Securities Commission. In Indonesia there is again a differing approach as it is treated and regulated as a commodity and regulated by the commodities regulator.
Going forward, it will likely continue to be the way that different countries make and enforce their own regulations in their own ways, and this is what makes the world a more interesting place to live in.
From tech giants to startups, Fintech has exploded and is being offered by a wide range of companies and this presents an increasingly challenging job for financial regulators. On whether this explosion in Fintech has increased the workload of regulators, Nizam mused that:
“We’ve not seen regulators work so hard before.”
3. The evolution of financial regulation
Around 15 years ago, regulators in the MAS moved from a prescriptive approach to a risk-based approach to financial crime, focusing on emerging trends and patterns of behaviours that suggest suspicious activity or noncompliance. The weakness of a prescriptive, rules-based model is that the regulators lay out criteria for flagging suspicious activity that may not be realistic in practice.
Every firm is risk rated based on inherent risk (based on quality of management among other factors) multiplied by the detrimental impact of the company should something go badly wrong. The higher the rating, the more scrutiny a company should expect to come under by MAS officers, whereas a low-risk company may not come under a regulatory audit for as long as a decade.
4. Regulation and law in Singapore
Laws and regulations evolve very quickly over time.
It used to be the case that drug trafficking and drug consumption were the only two predicate offences for money laundering in Singapore, but today there are hundreds of offences which are linked with the uptick in the law enforcement efforts dedicated to quashing money laundering.
Another key difference lies in the need for a defendant to have knowledge to be prosecuted for their involvement in money laundering. The defence of ignorance of where the money came from no longer holds up in modern courts of law, where constructive knowledge of laundering is now sufficient to prosecute.
Many thanks to Nizam for sharing your extensive experience with the team!
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