The Non-Data Sharing Data-Sharing Network: One Anti-Money Laundering Innovation Requires a Closer Look

Abstract

Financial authorities worldwide are focused on how new technologies can be used to more effectively combat money laundering and financial crime. The UK’s Financial Conduct Authority (the “FCA”) is one of the leaders in the movement towards using financial technology (FinTech) and regulatory technology (RegTech) to fight money laundering. In the FCA’s most recent conference on this issue, which was attended by over 100 technology firms, regulators, and law enforcement agencies from the US, Europe, the Middle East, and Asia, participants were tasked with developing proposals to address fifteen problem statements relating to how new technologies can more effectively combat money laundering and financial crime. This article addresses one of the proposals that received significant attention during and subsequent to the conference. The proposal, offered by Santander Bank and others, called for financial institutions to use distributed ledger technology to develop a database of “bad actors” without requiring the institutions to share the underlying transactional data that led to the “bad actor” designation. The goal for the database was to create a money laundering detection network to benefit all financial institutions in the ecosphere without running afoul of data privacy restrictions. This “Catch the Chameleon” proposal won the “Eureka” award at the conference for the “most original idea” and, according to the FCA website, will receive “support to progress” from Level 39, RegTech Associates and The Disruption House. Following the conference, the proposal continued to receive attention from other major financial institutions. For example, Credit Suisse highlighted the proposal in its letter responding to FINRA’s request for comment on FinTech innovation, deeming the proposal worthy of exploration. I propose that while clearly worthy of merit, there are at least three significant dangers of the platform or database as described on the FCA website, and in light of the heightened attention this proposal has received, these concerns are worthy of further discussion and exploration.