UK Banks Lead in Race to Merge Fraud, Financial Crime Operations

Data Protection , Fraud Detection , Compliance
11.09.2019 09:23 am

A new independent survey by research firm Ovum on behalf of global analytic software firm FICO has found that most banks plan to integrate their fraud and financial crime compliance systems and activities, in response to new criminal threats and punishing fines. Responses show that UK banks are more advanced in their progress and ambitions than most countries surveyed.

More information: https://www.fico.com/en/latest-thinking/ebook/united-kingdom-banking-survey-2019

The survey found that two thirds of banks across the regions surveyed have strategic plans for further integration, either to fully integrate functions or share resources where synergies exist. A further 20% are actively seeking to obtain synergies even if they are only taking a tactical approach.

Since the financial crisis, regulatory fines for the global banking industry for compliance breaches related to AML or sanctions failures now total more than $28 billion. Some single fines have been as high as $8.9 billion. However, this regulatory ‘stick’ is only one driver for banks to tackle financial crime — banks also wish to protect their customers and themselves.

“Banks are asking a fundamental question: Is the current approach to tackling financial crime sustainable or should they seek a more integrated approach between fraud and anti-money laundering (AML) compliance?” said Matt Cox, who oversees fraud, compliance and cybersecurity solutions for FICO.

However, FICO’s survey found major differences between approaches in the UK and the nine other countries studied.

Top pain points in meeting financial crime compliance objectives

Priorities	UK	Rest of World
1	Managing high workload volumes due to defensive approach (e.g. SAR filings) – 47%	Ensuring detection rates are high – 41%
2	High levels of false positives – 47%	Speed in responding to new financial crime threats – 36%
3	Ensuring detection rates are high – 35%	High levels of false positives – 35%

“Ensuring high detection creates major operational challenges in the subsequent operational workloads,” Cox remarked. “Particularly in Europe (as well as South Africa), institutions struggle to manage high levels of false positives (suspected fraud or money laundering that is not). In the UK, the overall volumes of suspicious activity reports or SARs that require investigation poses the biggest challenge.”

Main technology-related challenges for anti-financial crime

Priorities	UK	Rest of World
1	Performance of technology platforms – 53%	Performance of technology platforms – 46%
2	Use of multiple systems across operational processes – 35%	Use of multiple systems across operational processes – 43%
3	Speed to change technology systems – 35%	Cost of technology systems – 39%

“Performance is the key driver in the UK and other countries,” said Cox. “Similarly, banks in all regions are frustrated by the number of systems they need to use.”

Current level of integration between fraud and financial crime compliance functions

Top Areas	UK	Rest of World
1	Investigation systems – 53% very integrated	Data – 30% very integrated
2	Detection systems – 35% very integrated	Controls – 25% very integrated
3	Controls – 25% very integrated	Investigation systems – 24% very integrated

“UK banks reported higher levels of integration in six out of seven areas,” said Cox. “That said, even in the area with the highest level of integration — investigation systems — only just over half of UK banks said their fraud and financial crime compliance systems were very integrated. We are still at the start of the process of bringing these functions closer together.”

Ambitions for integration between fraud and AML compliance functions

While the majority of banks across all regions have strategic plans for convergence, nearly half of UK banks reported a strategic plan to fully integrate functions, compared to 26 percent of all other banks.

“Convergence is a hot trend in the fraud and financial crime compliance space,” Cox said. “Overall, our survey shows that banks are moving in this direction, though the UK is further along than most countries surveyed.”

Ovum surveyed over 100 retail banks on their priorities, challenges, and plans for financial crime, looking to assess the maturity of the sector in tackling financial crime, and ambitions towards integration. Respondents came from the UK, the US, Canada, South Africa, the Nordics, Germany and Austria.