2023 updates and trends – Why talent should be your focus in combating financial crime in 2023
The 2018 FATF report and the UK Treasury Committee Report noted that the UK needed to “strengthen its supervision and increase the resources of its financial intelligence unit.[1]” It stated that it “needs to address certain areas of weakness, such as supervision and the reporting and investigation of suspicious transactions.”
Recent research by DWF indicates that, a UK financial institution (FI) spends an average of £374,000 every year on detecting and preventing financial crime. The shift to mass digital adoption, which raise the potential of money laundering and other financial crimes, create new regulatory concerns[2].
As compliance teams enter 2023, what can they expect to focus on and why should the emphasis be placed on talent in combating financial crime in the UK?
Improving AML controls
It will come as no surprise that for traditional and non-transitional banks or challenger banks, that no matter how old or new your AML processing systems are, they need to be strengthened. As customer centricity becomes key, many compliance departments will want a speedy signup process, especially when setting up money mule networks. Additionally, there is a concern that the data acquired at the account opening stage is insufficient to detect higher risk consumers when these challenger banks advertise the capacity to open accounts very quickly to attract users.
Banks need to improve how they manage the risk of financial crime, paying close attention to how reliable their AML compliance solutions are.
It’s all cyber to me – data and cyber security
A thorough understanding of the most recent trends in cyber-attacks is a key part in the detection of attempted fraud and the response to it. Even though attack tactics can vary, there are tell-tale signals that, if appropriately recognised by the business and security departments, will enable financial organisations to find and halt an assault before suffering financial losses.
According to figures from the UK police division Action Fraud, as published by the Financial Times, cryptocurrency fraud surged by 32% in the UK to $273 million ($226 million) in a single year [3]. With more online movement.
Dealing with new challenges in fraud ‘online’ for the vulnerable
The rising cost of living will also have a significant impact on fraud and financial service institutions, who need to be prepared for an increase in fraudulent behaviour linked to online activities.
People who are struggling financially may be more receptive to offers on social media and online to make “a little more money” as a result of rising inflation and energy costs. This is known to thieves, who repeatedly take advantage of it. They are aware that financial strain and pressure make victims less suspicious of con artists and scams and more vulnerable to crime.
During the next 12 months, the danger of financial crime and fraud will rise as a result of developments in digital technology. Over the past 10 years, financial transactions have gotten more faceless and distant, which has had many positive effects but unintentionally created a fertile field for identity fraud. Fewer “in-person” transactions and interactions can supply thieves more opportunities to use stolen identities to make illegal money.
The combination of economic conditions and developments in digital technology feeds criminals’ thirst for fraudulent financial activity. According to research conducted by the International Banker, 32% of financial services organisations think that fraud and financial crime are receiving more attention and resources from criminals. Fraudsters and lawbreakers are drawn to situations with many areas of vulnerability.
Advancing fraud detection with the right skills
Technology cannot completely reduce or prevent the danger of fraud. Any fraud prevention and detection measures must be supplemented by human intervention. While sophisticated technology is capable of detecting signals, humans may further evaluate data and spot anomalies that are invisible to technology alone. For instance, through inquiry, skilled fraud examiners can find false positives and legitimate applications, or they can find dormant businesses that have been manufacturing papers and submitting fraudulent applications[4].
Talent is key and should be part of 2023 planning
Even if companies were prepared to do so, the most pernicious issue affecting the compliance departments of financial firms cannot be resolved by throwing money at it. High-calibre professionals are in short supply globally, particularly those who combine compliance with uncommon technical abilities. Due to the function’s increased participation in fields like digital security, ESG, and crypto-finance, demand for these specialist personnel is rising[5].
Every aspect of your compliance function needs careful review and improvement, but since compliance teams are already under a lot of BAU pressure, many find it difficult to have a true understanding of what added improvements need to be made, and often in a short amount of time. This is a persistent challenge and issue with getting compliance technology and automation right.
Teams of contingent resources may ensure that “no stone is left unturned,” and in a highly competitive regulatory market, recruiting contingent resources can be a game-changer in identifying the gaps in your risk assessments and developing actionable strategies to fill them.
Using the expertise of contingent resourcing can offer many firms breathing space in terms of resolving any issues their AML controls may have. Setting up the right teams to ensure any gaps are found will be key for firms this year as regulators place more pressure on financial service participants to strengthen current compliance systems and controls.
