How Banks Are Fighting Financial Crime

Fintech has, without a doubt, come a long way in recent years. Unfortunately, new banking tech brings new opportunities for cybercriminals and fraudsters. Thankfully, banks and financial institutions worldwide have gotten wiser with regard to criminals and the latest techniques. Here we will discuss how banks are fighting back and what measures they are putting in place to meet compliance standards.

 

Fraud Detection & Prevention

 

Financial crime has spiraled in the last few years, and more than $200 billion was spent on anti-money laundering and sanctions compliance by financial services firms in 2021. Financial crime and fraud are far from victimless crimes and have been closely linked to human trafficking, drug trade, piracy, etc. The negative effects of financial crime are far-reaching, from a small business going bankrupt to corruption within governments. 

 

Just as people have increasingly moved toward eCommerce, more and more consumers and businesses are moving away from traditional banking, preferring to use online and neobanking. 

 

According to our article for: What is Internet banking?, more than 60% of account holders perform at least some of their banking online. However, with the growing popularity of online banking, there has also been an increase in a wide variety of scams, including phishing, catfishing, and malware attacks. 

 

Many financial institutions like the FRB, are making the most of AI and machine learning technologies for the most advanced and up-to-date fraud detection. Machine learning takes historical data and learns what transactions are valid and which are fraudulent, with algorithms that identify patterns and unusual behavior. 

 

Behavioral analytics features of online transactions are compared to check for anomalies, and the transaction is then given a fraud score. Financial institutions have the opportunity to gain an advantage over scammers with massive amounts of customer and transaction data, which, when used in conjunction with AI, serves as an effective detection and prevention security measure. 

 

 

Secure Information

 

All financial institutions have an obligation to protect customer data both by internal business practice policy and by governmental laws. Firstly, you need to understand the regulations and governing bodies where your financial institution is located. For example, in Europe, the Anti-Money Laundering Directive (AMLD), in the UK, the Financial Conduct Authority (FCA), in the United States, the Office of Comptroller of Currency (OCC), and worldwide, the Financial Action Taskforce (FATF). Banking has come a long way when it comes to secure information sharing, and these are just two measures implemented by banks to ensure data safety: 

 

1. Encryption

 

Banks handle massive amounts of personally identifiable information (PII), including addresses, names, telephone numbers, and social security info. By law, financial bodies are required to meet a high standard of protecting customer credentials. Encryption is essential at both the database level and application level for banking, as well as separate encryption keys. 

 

2. Multi-Factor authentication

 

These days, multi-factor authentication has become part of our daily lives and the gold standard for online security. Any time you log in to a service online, you most likely use a username and password of some kind, but also a generated code, providing a second layer of security, which is a proven and effective method to protect credentials from hackers and phishing attacks. 

 

Biometrics is becoming a more popular method of identification authentication but is still not completely safe from potential cybercrime. Thanks to the latest technology and the use of smartphones, online banking can be incredibly secure. At a customer level, always have all multi-factor authentication turned on whenever possible, especially when using online banking or purchasing for an eCommerce store.

 

 

Anti-Money Laundering Technology

 

Money laundering has long been one of the biggest challenges faced by financial institutions worldwide. According to the UNODC (United National Office on Drugs and Crime), an estimated amount of money is laundered by upwards of 5% of GDP globally, equaling around $2 trillion. To say that money laundering causes a headache for banks would be an understatement. It is incredibly costly and can easily ruin an institution's reputation. 

 

Money laundering is far-reaching these days and now also takes advantage of the iGaming and Cryptocurrency markets. For a more in-depth picture, read this article that discusses how to augment your AML in banking with Seon. It is vital that your banking institution utilizes a fraud prevention tool that both monitors transactions and verifies identity.

 

Anti-money laundering compliance and regulations are constantly being conceived. Banks or neobanks can make up the difference and keep up with changes thanks to the latest technologies, including real-time ID verification and machine learning. For example, real-time transaction monitoring is an extremely straightforward technique that can easily be adapted to meet changing AML requirements. You can set custom rules or money laundering detection, like IP addresses from sanctioned countries, unusually large transaction thresholds, and a start increase in transactions over a set period of time. 

 

Staff Engagement

 

Without a doubt, the future of security and successfully fighting financial and cybercrime is with advanced and intelligent technologies. That being said, using these tools to the best capability often comes down to staff engagement and education. 

 

Whether working in a physical bank or remotely for an online institution, banking staff need to fully understand the implications of financial crime and the human cost. For example, the financial services company Standard Chartered, tells us how tracking traffickers is fundamental in helping authorities tackle human trafficking by ensuring that proper anti-money laundering controls are implemented.

 

Continuous staff training is essential to building a complete defense. Banking employees must understand how the most used scams work, the tell-tale signs of fraud, and how to react appropriately when potential fraud is flagged. 

 

 

Conclusion

 

Neobanks and financial institutions play a vital part in the detection and prevention of the most dangerous criminal activity such as human trafficking, drug smuggling, and terrorism. Banks need to keep up with fraudsters by adapting to security systems constantly. Even though this poses a massive responsibility, it also offers an opportunity to help spot the bad guys and provide a valuable service to the local and global communities.