Current challenges in fighting financial crime – Part 1

As the threat and sophistication of financial crime continues to increase, financial institutions are challenged to stay one step ahead and ensure the highest level of protection for their organizations and customers. In part one of this two-part blog on financial crime, we’ll take a look at some of the factors driving the complexity and cost in fighting financial crime. And, in part two, we’ll talk about a new approach to fighting financial crime that addresses today’s key challenges.

Why is financial crime consuming more and more of a bank’s attention and budget? There are several factors that are converging to make fighting financial crime more difficult and expensive. First, regulators around the world are all trying to solve similar issues. However, they’re tackling them in different ways, with different rules. This means that, for regional or global banks with operations in several jurisdictions, the institution has to determine which rules apply to each transaction. The larger the institution and the more complex its operations, the more complex compliance becomes.

As an example, for sanctions screening, each jurisdiction issues its own lists of sanctioned entities, so checking each transaction in real time to ensure sanctions controls are being properly followed requires several different black lists to be maintained, updated and used. Institutions also need to know which lists to use for each transaction.

Second, the globalization of finance and the development of instant electronic payment systems have had an unparalleled impact on the evolution of fraud. In Europe, the new SEPA instant payment infrastructure will come into operation in 2017. Once fully operational, this will enable funds to be sent across borders in real time, creating another new business area that will need to be monitored.

By the end of 2017, many countries will process transactions in real time (some even using a block chain, permission-less, distributed database protocol), so delinquent patterns will need to be detected within nanoseconds. In the banking world, this means that instead of checking and stopping transactions that are processed in a batch or overnight, everything now needs to be done in real time. So, if an alert is raised, it also needs to be checked immediately. This is driving up the cost of processing each alert.

Recent analyses estimate that each false positive alert costs a bank in excess of $30. With global banks processing millions of transactions and most dealing with false positive rates exceeding five percent of all alerts, the costs of managing alerts is becoming unsustainable.

Third, the threat of financial crime now includes financial fraud, money laundering and bribery, as well as a raft of new cyber crimes, which can be even more difficult to monitor and prevent. The threat has become so diversified that it is impossible for individual units or departments operating in silos to effectively manage it.

Fourth, due to new technologies, advanced, multi-dimensional cyber crimes have reached a level of sophistication that renders conventional law enforcement methods ineffective. Mitigating and responding to these new types of crimes will continue to be a problem, as predicting threats and new patterns is very challenging. The unprecedented scale of the problem threatens the ability of authorities to respond with, according to one estimate, more than 150,000 viruses and other types of malicious code in global circulation and more than 148,000 computers compromised per day.

On the other hand, authorities have more criminal activity data at their disposal than ever before, which greatly improves intelligence gathering and enables them to complete investigations in a more streamlined and cost-effective way.

How should financial institutions respond to these drivers? What changes are required to ensure new types of financial crime are combatted while costs are kept in check? In part two of this blog, we’ll discuss a new enterprise-wide approach to financial crime that removes traditional silos and helps banks to cost-effectively achieve higher levels of security—not only to protect but to create competitive advantage.

We invite you to contact us for a more detailed discussion on these drivers and the impact on your organization. You can reach us at banking.solutions@cgi.com. We also encourage you to stay tuned for part two of this blog to learn about a new approach for tackling the increasing complexity and cost of fighting financial crime.