The rise of fincrime: how technology can better protect financial firms and their customers

This article is part of our Opinions section.

Economic crime is more complex and pervasive than ever before – with advancements in AI and machine learning, the methods with which criminals can commit fraud and fincrime have exploded. 

And so all businesses, but particularly financial institutions, are under constant threat from fraudsters, money launderers and other criminals seeking to use new means to exploit vulnerabilities in the system. In fact, an estimated $3.1 trillion in illicit funds flowed through the global financial system in 2023 alone, with fraud schemes and bank fraud alone resulting in projected losses of $485.6 billion, according to Nasdaq’s Global Financial Crime Report.

So it’s no surprise that financial institutions and other regulated firms are rightly under increasing pressure to do more to protect themselves, and their customers, from this ever-present threat. Historically, they have employed large numbers of staff to combat money laundering, but regulators are now expecting to see digital solutions in place to counter the risk of financial fraud, and with good reason. Technology can be the deciding factor in the war on financial crime and here’s why:

Better risk detection

Technology platforms can analyse historical data to predict potential incidents of money laundering, enabling organisations to take preventive measures, while also identifying unusual patterns or changes in customer risk profiles, which may also indicate suspicious activity. 

Advanced analytics can help companies identify complex patterns across large datasets, making it easier to detect networks of fraud. It is also possible to assign risk scores to transactions or entities based on their likelihood of being associated with money laundering. This helps in prioritising high-risk cases for investigation.

Enhanced KYB checks

Whilst individual actors remain a threat, combined entities such as businesses are an ever-growing risk for MLRO’s. Know Your Business (KYB) checks are now a critical component of any comprehensive risk management strategy, which is why regulatory bodies worldwide mandate KYB checks as part of their anti-money laundering and counter-terrorism financing regulations to verify the legitimacy, ownership, reputation and financial health of other businesses before entering into a commercial relationship with them. 

They can help uncover connections to criminal organisations, and sanctioned individuals or identify suspicious financial activities that warrant further investigation. The right technology makes this process of verifying customer identities and conducting enhanced due diligence on companies (and the individuals behind them) quick, easy and incredibly thorough. 

More accurate identity verification

Biometric verification is a powerful tool in enhancing anti-money laundering and fraud detection. It involves using unique physical or behavioural characteristics of an individual to verify their identity. Traits like fingerprints, facial features, iris patterns and voiceprints are unique to each individual and are nearly impossible to replicate or forge. This makes them highly reliable for verifying that clients are who they say they are.

Biometric verification can also reduce the number of false positives in fraud detection by providing a highly accurate means of confirming the identity of a customer. This leads to more reliable results and lessens the need for manual intervention.

Continuous and real-time monitoring

Real-time alerts allow for immediate action when suspicious activity is detected. This can prevent or minimise potential financial losses and damage to a company’s reputation. By identifying and acting upon suspicious activities in real-time, financial institutions can reduce the risk of financial losses associated with incidents of economic crime.

Continuous monitoring with real-time alerts can also help refine the accuracy of anti-money laundering systems over time. This reduces the number of false alerts and decreases the need for manual intervention.

To the future

As financial crime continues to evolve, so too must the diligence and rigour with which we look to combat it. 

According to data from Fortune Business Insights, investment in regulatory technology (RegTech) globally is set to grow from $15.8 billion in 2024 to $86 billion by 2032. This tells us that companies are heading in the right direction when it comes to investing in appropriate technology to better protect themselves and their customers from the devastating effects of fraud and financial crime. All financial firms need to follow suit to ensure they are doing all they can to safeguard their operations and protect their customers.

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