Financial institutions, rich in personal and financial data, are a lucrative target for criminals. Lack of expertise and existing IT systems compound the threat posed by criminals, whose skills and capabilities are often light years away from those of the institutions in their crosshairs.
“A lot of this comes from the siled infrastructure that many institutions currently have. This results in a rigid data and technology environment that [require] frequent, costly and complex upgrading of applications so that these platforms can combat new crime patterns.
“As a result, many companies tend to continually encounter new patterns of criminal behavior and take enforcement action instead of proactively disrupting today’s criminal networks and anticipating the challenges of future. »
New types of financial crime, including synthetic identity fraud, also highlight weaknesses in contemporary financial crime prevention systems.
Synthetic identity fraud involves using synthetic identities – created with a combination of true and false information rather than an entirely stolen identity – to apply for credit. The largest synthetic ID network detected so far brought in $200 million from 7,000 synthetic IDs and 25,000 credit cards.
“This type of fraud is difficult to detect due to the limited know-your-customer (KYC) data collected by most companies. [is] insufficient to detect fake individuals early in the process,” Dr. Harmon said.
“The most effective approach to combating this problem is to leverage advanced machine learning (ML) techniques combined with a more holistic (i.e. enterprise) view of KYC by integrating other data sources from internal and external sources.
Many financial institutions rely on “static detection rules” that are not adapted to the ever-changing nature of financial crime. Dr. Harmon believes that institutions need to develop a “machine learning-driven environment” with dynamic rules and built-in detection models.
But regulators and law enforcement are also lagging behind: research on the European market estimates that only 1 percent of crime proceeds are confiscated by authorities.
“Financial crime has become increasingly pervasive and permeates all levels of the financial services industry,” Dr Harmon said.
“Criminal networks are creative, connected, collaborative and ready to exploit any opportunity within or around business operations. We now even have state-backed actors.
“All of this is deeply concerning, not only for the financial services industry and our regulators, but also for society as a whole. »
