• Andrew Davies, VP, Global Market Strategy, Financial Crime and Risk Management at Fiserv


• 20.01.2020 11:15 am
Financial crime

Financial crime is becoming increasingly sophisticated as new threats emerge and evolve at a rapid pace. As the new decade begins, both criminals and financial institutions are prepared to take the offensive, leveraging know-how and technology in a toe-to-toe matchup.

As the financial services industry continues to adopt faster payments and greater digitisation, distinct fraud and risk management approaches have emerged, including these three best practices for 2020.

1. Balance speed with security

From transaction initiation to settlement, money movement is happening more quickly. Yet it’s important that security not be sacrificed for the sake of speed.

In order to help achieve this balance, institutions are turning to machine learning, artificial intelligence and real-time transactional data analysis to uncover potential criminal activity. Those technologies can consume more data from more sources more quickly than human investigators, enabling faster analysis of a broader evidence base and, ultimately, more accurate detection. Financial institutions can find that which is legitimately suspicious rather than spending time chasing false positives.

Advanced inference techniques also can play an important role in preventing false positives. For example, the transfer of money to a foreign country would normally be a red flag for fraud. Yet applying advanced inference techniques to the overall customer data set may reveal other purchases made in the country that indicate connections abroad, and therefore reduce the likelihood that the transaction is fraudulent.

Balancing speed with security also includes a personal component, as some people and businesses are more tolerant of risk. While small business might want an alert for an unusual $5,000 transaction, a larger company might want to be notified only if it’s above $20,000. A desire to meet these customer-specific needs will drive continued adoption of a risk-based approach to monitoring based on the profile of the person or organization.

2. Get ahead of false identities

As more personal information has become accessible to criminals, whether through major data breaches or attacks on individual accounts there has been an increase in synthetic identities. These stolen or fabricated identities can be used to establish relationships with financial institutions. And, once criminals have established a relationship with an institution, there’s a full menu of financial crime possibilities. For example, a fraudster could take out a loan and not pay it back, make a small deposit and take advantage of overdraft services, or establish a mortgage.

Financial institutions can protect themselves against identity fraud by using all the information at their disposal to understand customer identity. The use of “sovereign” information for verification, such as addresses and employment details, is widespread. Increasingly though, institutions can verify customers through information tied to their digital devices such as smartphones – part of the “self-sovereign” domain of information.

Combining a greater breadth of information with data analytics and machine learning can give financial institutions a powerful defense and reduce criminals’ scope to cause harm.

3. Broaden the search for money laundering

Money laundering has become big business. According to the United Nations Office on Drugs and Crime, money laundering represents between 2 and 5 percent of global gross domestic product, or $800 billion to $2 trillion.

The goal of money laundering is to move money around to create layers that obfuscate the source of the criminal funds and, ultimately, turn the proceeds of crime into “legitimate” assets. Financial institutions have been subject to anti-money laundering oversight for years and many have systems in place to monitor that activity.

Yet, as anti-money laundering (AML) capabilities and policies have grown more sophisticated, criminals have shifted their tactics and targets.

In 2020, expect to see more criminal activity in areas such as trade finance, securities and insurance. Instead of moving money between different accounts and financial institutions, criminals can move to a different product for laundering. That might mean placing the money in a bank and then sending the cash to an insurance company to pay for a cash-redeemable life insurance policy.

To tackle this method of money laundering and detect these criminal activities, financial institutions are casting the net of monitoring and investigations wider and sharing intelligence with law enforcement, peers and even competitors in the name of preventing financial crime.

Float like a butterfly, sting like a bee

The movement of money is faster now than it’s ever been, and attacks are evolving just as fast.

In a rapidly evolving threat landscape, flexibility is an institution’s best defence. The goal is to develop strategies and adopt technologies that enable an institution to respond decisively, in real-time, to emerging risks, suspicious behaviour, and coordinated attacks. Institutions that manage to achieve this in ways that enhance, rather than inhibit the consumer experience, are likely to thrive in the new decade.