The leading knowledge platform for the financial technology industry
The leading knowledge platform for the financial technology industry

A-Team Insight Blogs

Lexis-Nexis Financial Crime Report Urges Multi-Layered Approach to Compliance, ID Proofing

Adopting a multi-layered approach to financial crime compliance and identity proofing is an essential best practice for financial institutions seeking to protect themselves from fraud and other criminal activities. That’s among the key findings of this year’s edition of LexisNexis Risk Solutions’ annual True Cost of Financial Crime Compliance Global Report.

The report – based on a survey of 1,015 financial crime compliance decision makers at financial institutions including banks as well as investment, asset management and insurance firms globally – suggests that firms that have spent more on technology solutions have benefited from smaller year-on-year financial crime compliance operations cost increases than those focusing more on manual solutions. They have also seen lower costs per full-time employee and experienced fewer pandemic-related challenges.

According to the report, the biggest risks facing financial institutions are misrepresentation of business ownership, fake identities, mobile/online channel transactions (which can be used to shield true identities), non-bank payment systems and cryptocurrencies. These translate into a series of challenges that firms need to address, including customer risk profiling, sanctions screening, efficient alerts resolution, complex payment chains and positive ID of politically exposed persons (PEPs).

Firms can take mitigating actions by putting in place a multi-layered approach that includes investigating both the physical (name, address, documents) and digital identity attributes (in terms of digital footprint, devices, behaviour of the entity), according to the report. Firms should assess both the individual (is this the right person?) and the transaction (are there anomalies?), and should incorporate both KYC (individual) and KYB (business) investigations processes. Finally, firms should leverage data analytics to assess risks and behaviours in real time, the report suggests.

The survey found that financial institutions allocating a larger share of their financial crime compliance budgets to technology experience less severe financial and compliance operations impacts. For instance, only 42% of those spending more than half their financial crime technology budget on technology reported significantly negative impacts from Covid-19 on their customer risk profiling, compared with 57% reported by those allocating less than half on technology. Similarly, those focusing more on technology were impacted less by the top compliance challenges as cited by those taking a more manual approach: 26% vs. 47% citing difficulty in accessing KYC data; 26% vs. 44% citing delayed onboarding of new accounts; and 20% vs. 42% citing more manual compliance activities.

More broadly, the report projected the total cost of financial crime compliance across all financial institutions at $213.9 billion in 2021, surpassing the $180.9 billion recorded in 2020. But there was less consensus on operational challenges with customer risk profiling, sanctions screening, regulatory reporting, identifying PEPs, KYC for account onboarding and efficient alerts resolution all similarly ranked as key challenges.

Related content

WEBINAR

Recorded Webinar: Fighting fraud and financial crime with RegTech

Financial fraud and crime continue to escalate causing significant damage to companies, countries and the global economy despite enormous efforts by firms and organisations in the financial services sector to identify and expel bad actors. As these bad actors use increasingly sophisticated techniques to break into financial institutions and extract both money and data, so...

BLOG

Refinitiv Focuses the Financial Crime Fight Against War Criminals

Refinitiv is taking the financial crime fight to the source, partnering with investigative and policy team The Sentry to access open-source data on African war criminals for its World-Check dataset. Co-founded by George Clooney and a strategic partner of the Clooney Foundation for Justice, The Sentry uses open-source data collection, field research, and state-of-the-art network data...

EVENT

TradingTech Summit London

TradingTech Summit London will explore how trading firms are innovating in today’s cloud and digital based environment to create flexible, scalable trading platforms to support speed to market and business agility. Leveraging the cloud, AI and ML technologies to get an edge, automate processes and simplify operations in a cost effective way is the name of the game and will share practical insight from practitioners and technology leaders who are innovating and driving forward change in trading operations.

GUIDE

Entity Data Management Handbook – Seventh Edition

Sourcing entity data and ensuring efficient and effective entity data management is a challenge for many financial institutions as volumes of data rise, more regulations require entity data in reporting, and the fight again financial crime is escalated by bad actors using increasingly sophisticated techniques to attack processes and systems. That said, based on best...