It is becoming harder to fight financial crime, as boundaries are disappearing between the physical world (people and things) and the virtual world (electronic banking), as well as new channels of entry such as mobile and wearable payments.
Meanwhile, financial crime networks have become more sophisticated. In addition to being well-coordinated and innovative, they are also technologically advanced. As a result, financial crime becomes more difficult to combat even for the most committed organisations. Taking steps to prevent financial crime can be challenging for firms for a number of reasons:
The financial services industry is experimenting with various levels of automation and AI, but legacy data and systems problems are causing long and rigid implementation schedules.
Data, governance, validation, and reporting issues make it difficult for firms to move these capabilities from the lab to production. Additionally, existing technology capabilities and operational processes will need to be redesigned in order to accelerate the implementation of digital currencies by central banks.
Due to long implementation timelines, many companies have difficulty augmenting legacy monitoring systems with AI and other advanced detective approaches. Besides, many financial institutions rely on disparate processes and siloed IT systems to detect, prevent, and comply with regulations.
These systems and processes distinguish between financial crime and fraud, dealing with each as a separate and distinct problem, under different systems within different departments, with little or no integration between them. Lack of communication and sharing of data makes it difficult to see the bigger picture and connect the dots, making such crimes difficult to prevent.
The management of operations can be challenging, especially if the work is case based. Multiple touchpoints and strict timelines can complicate the planning and resourcing process. It is essential that financial crime operations have access to real‑time data in order to facilitate effective planning, forecasting, and management in order to overcome these challenges.
To make confident decisions based on data from case profiles, the bank needs a tool that provides visibility and control of its caseload. Although regulators are encouraging banks to share data and insights for better compliance, banks are not adopting and managing AML policies and dynamics as efficiently as they should.
Despite spending huge amounts around the world, financial institutions and banks are not having the impact they should, particularly because they suffer from:
- Lack of transparency – Because money launderers have honed their skills to bypass rules engines, investigators have trouble identifying false positives quickly and accurately.
- Lack of collaboration – Each institution develops its own AML program based on its own products, customer types, and locations, with little knowledge of suspicious patterns of behaviour reported across peers.
- Lack of resources – Financial institutions struggle to implement new rules. They are incentivised to file false positives rather than applying sensible risk criteria. As a result, regulators are pushing banks to use more advanced analytics in order to detect fraud in this context.
High Expectations of Regulators and Customers
Fighting financial crime has become more challenging due to compliance requirements and data volumes growing.
Furthermore, regulators expect financial institutions to take a proactive, innovative approach to disrupt financial crime, while financial institutions are also under pressure from investors and customers. Customers also expect their bank to deliver innovative, consumer‑centric digital services, investors want them to generate profits that are associated with larger customer bases and more products.
However, this can be in conflict with taking a more conservative approach to risk mitigation.
A reputational loss that results from financial crimes can have a devastating effect on stock valuation and revenue. While meeting their obligations to provide information to key regulators, financial institutions face challenges to enhance their financial crime prevention and detection capabilities. Regulatory comments request better‑quality suspicious activity reporting, rather than a large volume of filings.
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