Tackling the growing threat of financial crime through technology

Rosemary Gallagher talks to LexisNexis Risk Solutions about protecting businesses and people from financial exploitation fraudsters

It is increasingly expensive and time-consuming to comply with regulations that protect corporations and consumers

Financial crime is a growing problem for both businesses and their customers and looks set to increase as fraudsters target vulnerable people during the ongoing cost of living crisis, experts say. This means that financial institutions of all sizes must ensure that they have effective and compliant safeguards in place against criminal activity.

And as financial crimes and fraud increase, it becomes more expensive and time-consuming to comply with regulations that protect corporations and consumers.

The 2021 report Reducing AML Compliance Costs by LexisNexis® Risk Solutions, a global data and analytics company, found that UK banks are spending almost £30bn on anti-money laundering compliance. Surveying more than 300 financial services firms in the sector, the report found that people-related costs dominate compliance budgets. About 70 percent is spent on hiring, training, and retaining staff, and just under 25 percent is spent on technology, including systems, solutions, and data.

Chris Foy: “Different research shows the scale of the problem of financial crime, including money laundering, in the UK.”

Another study by LexisNexis® Risk Solutions revealed that 43 percent of financial services organizations expect the cost of living crisis to increase the risk of financial fraud in the coming months as fraudsters target vulnerable consumers struggling with mounting bills. Her report highlighted concerns that criminals are outpacing efforts to protect banks and their customers. It found that around a third of financial services organizations believe their anti-fraud and financial crime systems are out of step with criminal techniques.

Similar concerns are voiced by industry trade body UK Finance. In its recent half-yearly report, it said that because so much fraud comes from criminal activity through online and technology platforms, greater cross-sectoral action is needed to tackle the problem at source.

Chris Foy, director of market planning at LexisNexis® Risk Solutions, said: “Various research shows the scale of the problem of financial crime, including money laundering, in the UK. And we’ve seen a trend over several years of rising compliance costs.

“What I found particularly interesting in our latest financial crime compliance report was that the cost burden for companies seems to be focused on people, specifically employment and training, rather than technology. This is partly because the regulatory landscape is becoming more complex, creating more compliance work.”

Along with complex regulations and enforcement threats, Foyer explains that businesses are under internal pressure to “on-board” customers quickly to generate revenue. “These competing forces are quite large,” he adds. “Companies need to follow the know-your-customer (KYC) process, collect evidence such as passport and driving license to verify identity and check things like sanctions lists. This often means multiple integrations with different vendors and databases, which takes time. They should also do checks against internal systems and look at the overall risk profile, for example if people are applying for multiple products.

Foyer points out that choosing vendors to work with on compliance can be a long process for businesses, from research through engagement to implementation and support. If a financial services organization wants to enter new markets, it often needs to find more suppliers to work with. “Business sees itself repeating this cycle,” Foye adds.

Instead of this ongoing process of sourcing multiple vendors, LexisNexis® Risk Solutions says it helps organizations meet their compliance needs by offering a next-generation fraud and financial crime management platform capable of providing a unified view of risk.

Its orchestration solution, recognized by global technology research and consulting firm Gartner, makes risk management of digital interactions more efficient and less expensive. It eliminates the need for several different integrations from a number of vendors. In addition, LexisNexis® Risk Solutions research found that financial services firms now recognize the need to invest more in orchestration technology to improve customer outcomes, with two-thirds (69%) planning to increase technology investment in the next 12 months .

Foye says, “Our orchestration solution provides our customers with the ability to bring results from different validation checks onto one platform. It takes things to another level and records in a single audit trail, which is extremely important for compliance.”

In conclusion, LexisNexis® Risk Solutions describes the results of its research as “an encouraging look at the near future of financial crime compliance. A harmonious blend of advanced technology that removes all the menial, repetitive tasks associated with KYC while being flexible, allowing organizations to remain compliant and empowering people to do what they do best – rational, cognitive analytics and scanning the horizon.’

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