The Financial Crime Compliance (FCC) industry is currently facing numerous challenges that are reshaping its landscape and demanding more innovative solutions. At our inaugural Disrupt Fincrime event, our chief product officer, William Monk explored the top four themes driving complexity and dynamics in the space, and how we can overcome them.
1. Increasing Sophistication of Criminals
Criminals are continually evolving and getting more sophisticated, posing a significant challenge for the financial industry. The United Nations estimates that 2-5% of the global Gross Domestic Product (GDP) is laundered, highlighting the magnitude of the issue. Criminals grow ever more inventive, taking advantage of connected devices to extract the data needed for financial crime schemes.; one group hacked a casino’s fish tank Wi-fi.
Criminals are quick to adapt to new technologies and exploit them to their advantage. The constant development of new pathways and routes for exploitation makes it difficult for regulators to keep up, necessitating a proactive and innovative approach.
2. Relentless Digital Economy
The rapid development of the digital economy has transformed the financial landscape, with consumers expecting seamless journeys and instant gratification; which in turn demands regulators to adopt new control mechanisms.
The digital revolution has brought both opportunities and risks. While technologies like ChatGPT (and its Artificial Intelligence (AI) language model) have the potential for positive contributions, they can also be misused by criminals. The relentless pace of the digital economy creates a continuous challenge for regulators striving to close the door on illicit activities. And discourages financial institutions from adopting these innovative new technologies until regulators issue clear guidance. Suboptimal technology processes further exacerbate the problem, as the regulated industries often lack the necessary tools to respond proactively and mitigate risks effectively. Especially when organised criminals are taking advantage of new technologies well-ahead of the regulatory curve.
3. The Evolving Regulatory Environment
Regulators are facing an incredibly challenging time in their efforts to combat financial crime. As they work to establish robust regulations, criminals find ways to exploit loopholes and evade detection. This is why improving collaboration across regulatory bodies and via public-private partnerships are important.
Siloed technology and processes within organisations are leading to inefficient operations, poor client experience and undetected AML risks. Consolidating and overlaying different teams – KYC, screening, transaction monitoring, fraud, credit etc - in an organisation is necessary to ensure you’re outreaching clients in a unified and timely manner, to improve the overall client journey and experience. Recognising that the risk of financial crime is the sum of many interconnected parts, regulators must find ways to converge and develop a comprehensive approach to combat illicit activities.
4. Sub-optimal Technology Processes
Outdated or sub-optimal technology processes leave institutions vulnerable to financial crimes. Financial institutions cannot afford to dedicate excessive time to a single solution, given the ever-changing market demands. It is imperative to anticipate future needs and embrace flexibility wherever feasible. To effectively address these challenges, the industry must invest in advanced technologies and tools that enable proactive risk management, real-time monitoring, and swift responses.
The market has been dominated by traditional, legacy solutions for a long time. But more autonomy should be given to the users to be agile enough to react to the market, by building their own rules, configurations, dashboards, workflows etc, without relying on rigid release schedules. Enabling features like Napier’s sandbox environment in financial crime compliance platforms can bring huge operational savings on time, cost and resources by eliminating the need for intensive scenario testing.
Advanced technologies do not automatically equal AI. It is often more optimal to develop a rules-based approach that takes into account the unique business structures and financial crime risks of each organisation, to look more closely into the roots of the problem, rather than hastily adopting complex AI and automation blindly. By embracing innovation and leveraging advanced analytics and automation appropriately, financial institutions can enhance their ability to detect, prevent, and mitigate risks effectively.
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