How can banks stop innovative criminals? 

  • By Benny Chan

FICO’s lead for Financial Crime Solutions Benny Chan assesses how banks can effectively tackle the challenges in managing financial crime. 

High-profile money laundering cases in Australia and globally, and instances of non-compliance from financial institutions, casinos and the property market, have put anti-money laundering (AML) approaches and technologies under scrutiny. 

Traditional AML systems and processes are not keeping up and AUSTRAC, along with other regulators, are urging cultural, structural and technological change. 

In 2020, criminals have shifted their focus away from traditional channels such as cash and card, to concentrate on digital methods that are harder to stop. They deploy ransomware, leverage the anonymity in blockchains and virtual payments, and produce high-quality counterfeit IDs to avoid traditional detection.

These new scams illustrate why modern, AI-driven compliance is more important than ever, especially in a sophisticated and interconnected market like Australia.

4 Ways to Modernise Anti-Money Laundering 

    1.    Compliance Culture vs Cost Centre 

No longer considered a costly and time consuming “check the box” exercise to appease regulators, compliance is critical for protecting brand reputation, avoiding hefty fines and stopping new criminal attack vectors.

For AML compliance to be effective, it must use the latest AI technologies and be imbued as a culture from the top down, with its value to the entire business communicated and understood. 

    2.    Bring Fraud and AML functions together  

More than 70 per cent of APAC banks believe convergence will help stop fraud and financial crimes1 but only 18 per cent have a strategic plan to integrate fraud and anti-money laundering compliance functions.

More than 90 per cent of respondents surveyed by FICO said they operate fraud and AML separately or have low levels of collaboration when it comes to controls, detection systems and investigative systems.

Yet, we estimate that 80 percent of the functionality for fraud and AML checks on a new account opening is the same.

Against a backdrop of change and sophisticated attacks, financial organisations need a coordinated perspective of risk, and a synchronised effort to fight crime. 

    3.    Move on from outdated rules-based anti-money laundering systems 

As regulations become ever more demanding, rules-based systems grow more complex, with myriad interconnected rules driving know your customer (KYC) and transaction monitoring activity, resulting in ineffective Suspicious Activity Report (SAR) filing – also known as “defensive filing”. More innocuous cases get flagged for investigation driving up false positive rates, significantly. Sophisticated criminals devise work-arounds, avoiding known suspicious patterns of behaviour. It’s no wonder compliance processes and teams can’t keep up.  

    4.    Use AI and Machine Learning to add a “superhuman” boost to AML    

Machine learning algorithms learn novel new relationships from data and dramatically improve the efficacy of compliance operations. They can uncover previously hidden patterns in money movement and quickly identify changes in criminal behavior. 

A strong compliance culture, convergence, machine learning and AI-driven analytics will take AML beyond what classical rules-based systems can do. FICO revolutionised card fraud with the introduction of AI-driven detection in the early 1990s.

The power of AI is now being applied to AML and it will significantly reduce the number of false positives and ensure more accurate detection of financial crime.

When the sheer computing power of AI meets the transactional complexity of AML, good things happen.

Find out more at: Advancing AML Compliance with Artificial Intelligence