A survey has painted a stark picture of the financial world’s difficulties in tackling financial crime. Syed Rahman of Rahman Ravelli considers the situation.
If banks cannot keep up with the rate at which criminals devise new illegal activities, that has to be a concern. And that, according to a recently-published survey, is the dilemma that financial institutions are facing.
The survey’s findings are based on the responses from financial crime professionals in 17 countries. The picture it paints of the UK leaves little room for optimism. It is one of UK financial institutions raising their game in the battle against money laundering and fraud – but only doing the bare minimum. And this is at a time when, according to the survey, 65% of UK fraud and compliance leaders believe the criminals are now more sophisticated at laundering money than the banks who have to stop them.
BioCatch’s “The Dark Economy Survey’’ cites increasing concern about organised crime’s ability to move the proceeds of crimes such as human trafficking, drugs and terrorism. Of those who responded to the survey, 84% said that tackling this was of critical importance. Yet only 19% of those who responded from the UK said they involve law enforcement agencies in more than half of the instances of suspected financial crime they encounter.
The situation, therefore, appears to be one where those carrying out financial crime are outflanking the financial institutions – and those institutions are then reluctant to engage with law enforcement.
Indicator
This is, of course, only a survey. And the perceptions and experiences it is reporting cannot claim to be a comprehensive analysis of the current state of affairs. But it has to be seen as, at the very least, an indicator of problems. It may seem flippant or even disrespectful to talk of a skills gap between financial criminals and financial institutions. But there does appear to be a need for the gamekeeper to catch up with the poacher in this situation. The question is how to achieve this.
One way this could be done is via greater analysis. One positive to come out of the BioCatch survey was UK financial institutions’ higher than average use of behaviour-based analytics to detect fraud. Given that the devil is in the details when it comes to financial crime, that has to be a good thing.
But as there is an acknowledgement that those perpetrating financial crime are often one step ahead of the financial institutions, it begs the question whether such analytics could and should be employed earlier and / or to greater effect. There is, after all, only limited value in identifying fraud after it has happened. Such an achievement may help when it comes to devising future prevention procedures. But the goal has to be preventing illegal activity – not carefully cataloguing it after the event.
At present, financial institutions know the problems they face and are taking steps to address them. The difficulty for them is that the resourcefulness of the financial criminals shows little or no sign of petering out. The increasingly globalised, digitised nature of banking has enabled the institutions involved to offer more and swifter services to legitimate, law-abiding customers. Yet it has opened the doors of such institutions even wider for those who have no intention of acting legally: 44% of UK respondents to the survey said their organisations suffer annual losses to fraud of between £8 million and £20 million.
Detection
Regardless of the technology involved in the modern-day financial world, there is still a clear need for good, old-fashioned detection. The financial institutions know there is a problem, they are paying a high price because of that problem and yet they seem incapable of eradicating it – or even just containing it.
The aforementioned dependence on technology can do part of the job. But shortcomings in detection clearly exist. And until these are addressed by all those involved in the financial sector, it is very hard to envisage any improvements in the near future. Those in the financial sector do share intelligence with each other – to some degree – but the survey highlighted barriers to this, including rules regarding privacy and concerns over data breaches and misuse of information.
For many in banking, the need to remove the barriers to detecting financial crime cannot be over-emphasised. At present, technology and a degree of collaboration are being employed. But the figures show that the current approach is far from adequate when it comes to the threat that is being posed. Fresh thinking may be needed if banks are to tip the balance in their favour.
