Financial crime is a persistent and growing problem that affects individuals, businesses, and governments. The loss incurred due to financial crime can be significant and has a ripple effect on the economy. With the pandemic-induced economic downturn, financial criminals are becoming increasingly organized and sophisticated in their methods, making it even more challenging to detect and prevent fraudulent activities. It becomes crucial for companies to stay ahead of the curve and anticipate the emerging trends in financial crime to protect themselves and their customers.
According to a report by ComplyAdvantage, corporates are more likely to revise their risk-assessment parameters given the ever-fast-changing state of the economy and less likely to take on additional risks. With the rapid increase in e-commerce transactions, frauds related to credit cards and online banking are also on the rise. Synthetic identity fraud is also a growing concern, which involves criminals creating fake identities to obtain loans or credit cards. As more online payments and digital transactions occur, they give rise to a broader surface for financial crime, including crimes related to embedded finance products.
There has been a rise in illicit activity through non-banking areas such as gaming, gambling, and professional services, and the lack of a comprehensive regulatory framework surrounding this industry. Moreover, there is an increase in the use of DeFi platforms for fundraising for political extremist groups, terror financing, and the use of the crypto space for financial crimes. The dearth of industry standards, security measures, and regulations in Crypto, Web3, and the metaverse will worsen the situation.
Another focus area would be enhancing the efficiency and frequency of KYC and real-time screening procedures to match the increase in volume and rapidness of online transactions. With the increase in effectiveness and strictness of sanctions schemes, there arises a requirement for enhanced AML requirements to ensure more effective sanctions screening. To combat financial crime, there is a need for an increase in financial crime awareness. Ensuring that companies have the right policies, procedures, and processes in place is critical. Adherence is even more important. Therefore, companies must create a culture of compliance.
Firms will no longer be able to take a myopic and siloed approach to financial crime. Financial crime compliance and fraud have traditionally operated as separate business verticals. While financial crime compliance teams focus on meeting sanctions, anti-money laundering (AML), and other regulatory requirements, fraud departments are tasked with identifying and investigating potential and actual fraud. The need of the hour is to ensure the convergence of the two. According to a report by LexisNexis, compliance professionals can expect FRAML (fraud + anti-money laundering) to be the new watchword in 2023 and beyond.
Criminals are becoming increasingly organized, requiring greater scrutiny and sophisticated technology on the part of financial institutions. The use of AI to detect patterns in these crimes will help fight these institutions. To conclude, financial crime is a growing concern, and we need to be aware of the trends that are likely to emerge in 2023. As technology advances, so do the methods of criminals seeking to defraud individuals and entities. To combat this, we need to take a holistic approach to financial crime compliance and fraud detection by leveraging AI and converging financial crime awareness with unique technological solutions.