By Peter Cregg, Product Director, ActiveOps.
The Office for National Statistics revealed that in 2021, that there was a 43% increase in fraud and computer misuse crimes compared to 2019, indicating that economic crime – a broad term that covers a range of financial crimes – is on the rise. The pandemic altered the financial landscape for banks and customers, and with new opportunities for growth have come new risks.
Financial crime is multi-faceted, multi-national and difficult to detect, making it hard for authorities and institutions to identify, measure and remediate. Fraud, money laundering, terrorist financing, illegal payments and many more crimes fall within this category of offences, with fraud and fraud related offences such as counterfeiting, being one of the most prevalent crimes in the UK according to the National Crime Agency. It impacts individuals, major corporations, small businesses, and the public sector – and costs the UK billions of pounds each year. According to the International Compliance Association, financial crime accounts for 3.6% of global GDP.
It’s a growing and rapidly evolving issue for financial institutions, economies, and governments across the globe, in part due to the pandemic and digital transformation. The Covid-19 pandemic has significantly altered financial behaviours, making it harder for banks to identify anomalies and behaviour that could amount to financial crime. During the pandemic, it’s been prime time for fraudsters who have made the most of people turning to online shopping, while some businesses may have become more likely to engage in unethical financial practices to support themselves. This has heightened the risk of banks becoming caught up in financial crime, particularly where payments are concerned.
Transaction volumes are also increasing, with the amount of money moving through mobile payment systems growing exponentially in the past two years so it’s now easier than ever to buy and accept payments internationally. In fact, according to the GSM Association’s 2021 report, an industry organisation for mobile network operators, more than $2 billion is transacted via mobile every day. Mobile money makes it easier than ever for criminals to move ‘dirty’ money without risk of detection. While mobile payments may be regarded as low risk, for banks that facilitate international transactions or operate in multiple jurisdictions where money laundering is common, it’s crucial that the risk is properly evaluated.
Mitigating risk through operations management
Preventing and detecting financial crime is one of the biggest challenges facing financial institutions globally. The impact of these crimes is far reaching, from regulatory fines to negatively impacting reputation and brand, business relations and employee morale. If a bank is involved in a significant breach or unwittingly enables financial crime, customer trust will also erode.
On a day-to-day basis, successful and timely anti-money laundering (AML) and know your customer (KYC) compliance is a significant challenge for banks that need to be overcome to reduce the risk of financial crime. Every resourcing and workload management decision can have an impact on risk and outcomes, while mistakes can result in fines, damage to reputation and accidental funding of criminal activity. However, operations can be difficult to manage – particularly where the work is case-based. Planning and resourcing can be challenging, as there are multiple touchpoints and strict timelines involved. Falling behind simply isn’t an option.
To overcome these issues, financial crime operations need real-time data and insights to enable effective management, forecasting and planning. Banks need tools that provide visibility and control that helps leaders make decisions with confidence by combining case profiles, progress logs and SLA data with people, capacity, and skills information to create a complete view of a bank’s caseload.
Operational management solutions that complement AML and KYC systems give financial crime operations real-time data and insights. This enables effective management, forecasting and planning. This also provides clarity and control, helping teams move faster with AML caseloads thanks to more efficient management of staff numbers, deadlines, and costs. Including these powerful capabilities within software gives managers real-time insight without having to spend hours or days collating and analysing data, enabling faster and better decision-making.
As well as a need to tackle rising financial crime risk, banks must also stay on top of increasing regulatory scrutiny. Non-compliance can result in regulatory actions and fines, finance losses to the bank and the customer, and of course, reputational damage. In 2021, the total fines for AML breaches amounted to €2.5 billion globally. This is down from the 2020 figure of €11.5 billion, but it indicates that the pressure is still on to ensure that AML and KYC processes are watertight. Meanwhile, a 2022 FICO survey highlighted that 56% of British consumers would leave their bank if it were found to have been involved in a money laundering scandal. Managing operations using an effective solution can reduce a bank’s exposure to regulatory risk, helping banks stay on top of workload, avoid falling behind on Service Level Agreements (SLAs) and staying compliant with industry regulations.
The threat and complexity of financial crime is only going to grow as digital transformation continues to reshape how people make and accept payments. Banks need to get ahead now so they can enable fast, fuss-free payments while remaining compliant and reducing risk through visibility, predictability, and control.
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