The highwaymen are back! Unlike the notorious criminals that targeted English coaches to and from London in the 17th and 18th centuries, these tech-savvy crooks are out to defraud small and big financial institutions. Financial crime is rampant today, with around $ 2 trillion being laundered annually. This is way above what the financial world spends on preventing this crime — $ 275 billion.
The reasons for this bewildering gap are many. Primarily, it’s because many anti-money laundering (AML) programmes prioritise regulatory and technical requirements over the effectiveness of the programme itself in blocking criminal activity. The other significant reason is the snail’s pace at which many financial institutions adopt new technology. Their legacy systems are difficult to integrate with modern compliance tools, which causes monitoring gaps.
Inherent blind spots in customer due diligence are among other key vulnerabilities. Insufficient staff training further undermines the effectiveness of AML policies. But the most significant deterrent is the ongoing arms race between the financial world and criminals. These fraudsters exploit new technologies and adapt faster than regulatory frameworks can evolve. They use advanced methods to circumvent controls, making it difficult for traditional AML systems to keep pace.
Another trend is the blurring of lines between money laundering and financial fraud. Criminals do this by orchestrating schemes where fraudulent activities generate funds that are laundered through complex financial channels. They exploit the silos in financial ecosystems. A typical example is how compliance teams focus only on AML and risk teams only on fraud. Criminals have devised methods to move money in ways that evade detection by either group alone. For example, stolen funds from phishing attacks may be layered through mule accounts or shell companies, masking their origin. This lack of integrated monitoring and intelligence sharing allows suspicious transactions to slip through the cracks, making both fraud and money laundering harder to detect and prevent. Hence, the convergence of these two functions is vital in financial institutions.
A solution to bridge this age-old gap is FRAML: Fraud Risk Assessment and Management Lifecycle. This integrated approach plugs these operational gaps through unified data analytics and investigations, enabling shared risk assessments that address both fraud and money laundering threats simultaneously. This is not just theory. A North American Tier 1 bank implemented FRAML to elicit a 30% increase in mule account detection within a year. This was achieved through the fraud detection, KYC and transaction monitoring systems it implemented.
The convergence movement is powered by technological advances that are influencing financial crime compliance. Artificial Intelligence (AI) and Machine Learning (ML) lead this transformation, with 90% of financial institutions expected to deploy AI/ML for AML purposes by 2025. These systems excel at detecting complex patterns that traditional rule-based systems miss. They reduce false positives by up to 40%, while enabling real-time monitoring.
Regulatory Technology (RegTech) automates compliance tasks and dynamically updates protocols as regulations evolve. This helps in mitigating human error and ensuring consistent adherence to changing requirements. Blockchain technology is also impacting compliance infrastructure — 15% of AML/KYC procedures now utilise blockchain for immutable, tamper-proof transaction records that facilitate seamless cross-border cooperation.
Modern risk management transcends traditional boundaries through Integrated Enterprise Risk Management platforms that consolidate data from finance, compliance, operations and IT departments.
This union enables a shift from reactive to proactive risk management. Real-time monitoring systems now prevent crimes before they escalate, identifying suspicious patterns before significant damage has been done.
As criminals leverage more advanced technology, combating financial fraud and money laundering is set to become more complicated. Some key strategies can help organisations stay ahead in this race.
They should use AI and automation as their frontline soldiers in transaction monitoring and anomaly detection. These technologies process vast data volumes at speeds impossible for human analysts, identifying subtle patterns traditional rule-based systems fault to spot, while significantly reducing false positives.
Break down silos between AML and fraud teams. Unified platforms and shared analytics create comprehensive visibility that isolated systems cannot provide. When these teams collaborate through integrated technology, they detect sophisticated schemes that exploit the gaps between different compliance functions.
Continuously update protocols. Criminal tactics evolve rapidly, so compliance frameworks must adapt equally quickly. Institutions relying on static procedures will fall prey to emerging threats.
Demonstrate genuine commitment to compliance principles at the leadership level. All employees must understand their role in preventing financial crime.
The convergence of cyber intelligence, AML and fraud prevention represents more than technological integration. It’s a fundamental reimagining of financial crime defense. Financial institutions that embrace this comprehensive approach position themselves to stay ahead of evolving threats while building resilient, compliant operations designed for future challenges.
The stakes continue to rise as criminals become more sophisticated and regulators demand higher standards. Institutions that act decisively today will emerge as leaders in tomorrow’s financial crime prevention landscape.
How can Infosys BPM help?
Infosys BPM’s Financial Crime and Compliance offerings include solutions that empower enterprises to adapt and succeed in a dynamic business environment. We assist businesses to create breakthrough digital solutions that enable strategic insights, business excellence and enhanced customer experiences.
