For decades, financial services and risk have evolved hand-in-hand. As manual, paper-based processes have given way to digitisation, countless improvements in efficiency and effectiveness have been realised. Yet the best of times can also be the worst of times, as risks have multiplied at pace. It is incumbent on the financial services industry to continue to combat these ever-changing risks, using historical learnings as a foundation for new approaches, strategies and insights.
The evolution of financial crime detection
In the early days of electronic transactions, risk management was basic. With no historic information on which to base them, rules used to identify suspicious and potentially fraudulent transactions were simple and often arbitrary. As knowledge was gained, these generic rules evolved to expert rules, based on the experience derived from the outcome of the simple rules.
Expert rules proved to be quite effective, helping to address situations such as proliferating check fraud. Indeed, some of these expert rule-based solutions are still useful today.
As time went on and the volume of electronic information related to financial services continued to increase, the industry began to leverage statistical inference to more effectively handle risk. Subsequently and most recently we have seen a shift to using machine learning and artificial intelligence (AI) for fraud detection purposes. While the use of these technologies for fraud detection may seem revolutionary to some, it’s actually no surprise given the industry’s propensity to quickly adapt the latest technologies to the fight against financial crime.
Taking a look at today
Modern banking has evolved into an always-on, omnichannel operation; whether opening an account, checking a balance or moving money with a mobile device, customers expect a frictionless, secure interaction.
The delivery of these modern banking experiences must be balanced against fraud that is fast-moving, automated, and perpetrated with sophisticated technology tools designed to bypass traditional controls.
Financial institutions are compelled to innovate to keep up with a rapidly changing landscape and increasingly innovative criminals. Institutions are seeking new ideas, solutions and approaches through the use of data, analytics, machine learning, AI technologies and more.
Even the most advanced technology is not enough to effectively combat financial crime on its own.
Leveraging these techniques has become key to managing financial crime risk and to the operational management of financial crime alerts, allowing detection of financial crime to become more precise and less disruptive of legitimate transactions. This helps financial services providers to balance risk management obligations with the delivery of a better customer experience, which is critical in a highly competitive financial services world.
Embracing a new path going forward
Institutions have begun to embrace the reality that effectively tackling financial crime requires applying new approaches, strategies, and insights; further investing in technology and innovation; developing new skills, and fostering collaboration within their internal financial crime units as well as externally with technology vendors and regulators.
For enhanced financial crime risk management, many are moving to converge anti-money laundering (AML), fraud, and information security functions to some degree to take advantage of shared intelligence and economies of scale in the tools that they use. This includes forming partnerships across those functions, realigning technology and organisational restructuring.
As institutions seek new solutions, ample opportunities exist for innovative technology providers. With deep expertise in technology, data science, analytics and integration projects, providers can become valued and trusted partners offering sage advice as financial service providers navigate their transformation journey.
The solution to defeating financial crime lies in a combination of the right technology, trusted data, and human intelligence, along with greater collaboration. The financial services industry has really only scratched the surface of what can be achieved, and the next decade will see further developments in this movement. Increased automation, simplified operational processes, and more detailed and less costly analytics create great potential for enhanced transparency while maintaining or improving personal privacy and security of financial activity.
Financial crime technology continues to evolve. Yet even the most advanced technology is not enough to effectively combat financial crime on its own. The future of financial crime detection, prevention and mitigation will be built on new approaches to deployment, a commitment to internal and industry-wide collaboration, and the ongoing implementation of new ideas. Enabling a balance between people, process and technology is critical to maximising return on technology investment and delivering heightened security in an ever-changing world.