Berlin, Germany, 20 August 2020 - The Federal Financial Supervisory Authority (BaFin) in Germany registered Elucidate, a Berlin-based RegTech financial crime risk quantification platform, as a Benchmark Administrator in the European Security and Markets Authority (ESMA) Registry under Article 34 of the EU Benchmarking Regulation (BMR) 2016/1011. The regulated status marks a crucial turning point in the industry pivot to effective assessment and management of financial crime risk.
To date, the financial sector’s ability to tackle financial crime risk has been hindered by a manifestation of Peter Drucker’s famous adage, “If you can’t measure it, you can’t manage it.” Ineffective financial crime risk measurement and assessment has been a primary driver behind most financial crime scandals in recent years. Managing financial crime risk has largely been seen as a matter of strict compliance, rather than a means of mitigating financial losses by preventing, detecting and blocking criminal activity. The result of these inefficiencies has been that up to 5% of global GDP, amounting to $2 Trillion of illegal activity (1), is processed by financial institutions each year.
Elucidate’s flagship product, the Elucidate FinCrime Index (EFI), is a benchmark defining the standard for measuring finance crime risk. This standard enables financial institutions to score, price and predict the risks of financial crime including money laundering, corruption, tax evasion, trafficking and terrorist financing. The EFI also utilises detailed risk modelling and machine learning to evolve the standard as risks emerge in the market, enabling users to transition from a “detect and report approach” to a “predict and prevent approach”.
Elucidate’s regulation under the BMR represents a critical market development towards a standardised, reliable, data-enabled paradigm for quantifying and managing financial crime risk. Shane Riedel, Co-founder and Chief Executive Officer (CEO) at Elucidate, explains how this is expected to affect the market: “Elucidate’s financial crime benchmark represents the international financial sector’s only regulated financial crime risk standard. This data-driven approach to assessing financial crime risk allows banks and financial institutions to analyse risk both internally and externally, and represents the only credible way to conclude the unending series of scandals and failings that have characterised efforts to date”.
The EFI uses modelling approaches similar to those used to quantify regulated indices such as credit or operational risk frameworks. Sihem Mouelhi, Chief Product Officer (CPO) at Elucidate, highlights the relevance of the BMR in the context of financial crime: ”This confirms our assertion that financial crime risk is a financial risk and should, therefore, be managed as such. This means that, just like any other financial risk, financial crime risk should be reliably and systematically quantified to make decisions at all levels of the organisation on relationships, pricing and corporate governance”.
_________
(1) https://www.unodc.org/unodc/en/money-laundering/overview.html
About Elucidate (https://elucidate.co/): Elucidate is a financial crime risk assessment company enabling financial institutions to benchmark and price financial crime risk through risk assessment, data analysis and scoring. It is the market’s first regulated financial crime risk benchmark providing a defined and measurable industry standard.
About the EU Benchmark Regulation (https://www.esma.europa.eu/policy-rules/benchmarks): The EU Benchmark Regulation (BMR) regulates indices used as benchmarks in financial instruments and financial contracts, as well as indices measuring the performance of investment funds. The BMR is also equivalent to comparable standards in other markets, including Singapore and Australia, and is widely recognised globally as the gold standard for the regulation of benchmarks and indices.
