Fighting Financial Crime, Together

by Andrew Davies

Collaboration is key to fighting financial crime and supporting financial system stability. With regulators, among peers, and across our institutions, we must work together.

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The COVID-19 pandemic brought out the criminal opportunists in 2020. Regulatory agencies around the world reported increases in fraud due to pandemic-related scams starting as early as February 2020. And the U.S. Federal Trade Commission reported that Americans have lost over $169 million to COVID-19 and stimulus fraud through October 28, 2020.

In order to counter these scams, financial institutions must be able to react with speed and flexibility, without dramatically increasing operational budgets or detracting from the customer experience. And the stakes are high. Aside from reputational and business losses, money laundering and financial crime impact the global financial system in its entirety and can help perpetuate crimes against humanity, such as human trafficking.

According to the United Nation’s (UN) Office on Drugs and Crime, about 2% to 5% of global GDP, approximately $2 trillion, is laundered through the global financial system annually. Cybersecurity Ventures believes cybercrime could cause $6 trillion in damage annually by 2021.

We can use the current circumstance as a catalyst to build financial crime and risk management best practices that protect us in the future. The key is collaboration. Three key parties have to work well together to protect consumers and financial institutions: regulators, internal teams and the industry at large. 

Regulatory Collaboration

The UN Office on Drugs and Crime estimates that only 1% of illicit money flowing through the financial system is seized or frozen by law enforcement. Current systems are largely ineffective, The Wall Street Journal reported, because they lack useful real-time feedback on specific cases and types of potential crime.

It’s time to stop being compliant but ineffective. Rather than being a box-checking exercise, regulatory compliance can effectively lower financial crime risk, achieving its intended purpose by focusing on outcomes.

Regulators around the world are advocating for the use of technology to effectively manage risk, and they themselves are using innovation to uncover suspicious activities.

Financial leaders should encourage and work with regulators to understand how technology can increase the efficacy of compliance efforts. It’s not “us” versus “them.” If anything, the pandemic has shown regulators’ resolve to work across the aisle. And regulators have not asked financial institutions to sink or swim on their own.

Many regulators are allowing experimentation or supporting innovation hubs to help financial institutions monitor and deter financial crime in real time. And many government bodies like the U.S. Federal Trade Commission, the UK National Fraud Intelligence Bureau, the Monetary Authority of Singapore and the Australian Competition and Consumer Commission have published new and evolving scams to facilitate monitoring and detection.

Regulators and financial institutions are both managing unique, pandemic-driven circumstances. In truth, we have always been on the same side. Once we focus on our mutual goals – protecting people and organizations – then we can collaborate more openly and effectively; and not only on process, but on fighting financial crime.

Internal Collaboration

Financial leaders set the tone from the top: Financial crime and risk management is everyone’s responsibility. Business owners, product developers, risk teams – even operations and call centers – all need to be educated and aligned on a risk-based approach for the company.

Beyond that, how does an organization train its teams to spot red flags? Are customers educated about risk? How does the leadership team talk about compliance internally? Does the organization invest in it?

Financial institutions must apply all the data that’s available to them – from across the organization – to truly understand and mitigate risk. Given the current proliferation of data, finance teams need help to maintain constant vigilance. While this help may come primarily from technology, it is important that everyone within the organization understand the significance of data and its ability to help prevent and detect financial crime.

For example, digital banking channels surged during the pandemic and stay-at-home restrictions prompted institutions to accept remote verification and embrace virtual work situations. This scenario creates a higher volume of data. All of this data – and a multiplicity of data sources – can create vulnerabilities internal teams must be equipped and empowered to handle. Data wranglers need the right tools to manage both the volume and the veracity of data coming into the institution.

Internal teams are fighting financial crime against a complicated backdrop. Thanks to digital transformation, we have faster payments, more channels, more data. The challenge, and opportunity, afforded by the proliferation of data are more than any single leader or department can handle.  

Industry Collaboration

The value of money laundered annually around the world, as a percentage of global GDP, hasn’t changed materially in the last 10 to 15 years. If we’re to turn a corner and protect the financial system – and protect real people from predicate crimes such as human trafficking and drug trafficking – the industry has to work more collaboratively.

Some legislation and government initiatives permit, and even encourage, institutions to share information. But we need to go beyond that to effectively and proactively manage risk. We need to work together before we get to the point of sounding an alarm.

Shared data becomes richer. The financial industry needs a framework for sharing experiences and data more openly with peer institutions and regulators. We need a bigger sandbox to innovate and experiment with programs that prevent and deter financial crime.

There are challenges to this: we need to maintain data privacy and integrity, of course. But it’s equally important that we maximize how we use data. Working together is central to shoring up the financial system overall.

It’s a smart industry. Together, we can figure out (and teach one another) how to improve crime prevention, detection and remediation.

Moving Forward

We can use the current circumstance – this opportunity – to build financial crime and risk management practices that carry us into the future. Even after the pandemic, change will be constant and quick. Businesses will continue to operate remotely alongside traditional models. And there will always be too many demands requiring our attention.

If we use technology, we can fight financial crime and manage risk more effectively. If we use data to drive the workflows and decisions that prevent and deter crime, we can fight back faster. And if we collaborate across the industry, we can protect the financial system overall.

The trick to fighting modern, tech-enabled financial crime is tech-driven collaboration. Many hands must make lighter work of an otherwise indomitable task.

Andrew Davies is vice president, global market strategy, Financial Crime Risk Management at Fiserv.