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State of Financial Crime 2023 Report

5 Financial Crime Trends to Watch in 2023

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As we head into the New Year, our regulatory affairs team explores some of the trends they expect compliance teams to grapple with in the year ahead.

Deepfakes will fuel synthetic identity fraud

As a global recession looms, fraud and cybercrime will increase. Iain Armstrong, Regulatory Affairs Specialist at ComplyAdvantage, remarks:

“While virtual and remote onboarding has generally been a societal positive in terms of widening the accessibility of financial services, it has also created new ways for criminals to game the system. The technology to digitally fake a person’s identity has worrying implications for bad actors.”

Indeed, deepfakes have become more convincing in recent years. In 2023, Armstrong predicts that criminals will leverage deepfake technology further to bolster online fraud – especially synthetic identity fraud. The mortgage industry will be especially vulnerable.

He emphasizes that firms should seek solutions that reduce risk while ensuring a smooth customer experience.

Super apps risk undermining traditional risk management 

Multitasking apps that provide many services in one are on the rise in new markets, creating a prime opportunity for fraud. Aspiring super apps – possibly including Snap, Twitter, and Uber – go beyond their core functionalities to include things like payment services. According to Alia Mahmud, Regulatory Affairs Specialist at ComplyAdvantage, “this trend is now moving towards the West…billions of people [are] carrying out a large part of their mobile activities from a single app, from messaging friends [to] ordering products and services, ridesharing and banking.”

Although convenient, this could undermine traditional approaches to risk management. Criminals, says Mahmud, can use such platforms to perpetrate account takeovers, create fake accounts using stolen personally Identifiable Information (PII), and commit payment fraud. Firms interested in providing super app services – especially payments – must ensure they have proper risk controls to avoid unwittingly enabling criminals.

ESG programs clash with attempts at ‘greenwashing’

As global warming concerns grow, so too are programs to combat its impact. Carbon offsetting is one such scheme, but the ethical issues associated with some of its applications will likely be a trend in 2023. These can include human rights abuses and a lack of transparency or regulation. Mahmud predicts increasing ethical concerns surrounding this model. “The offset model rests on the idea that carbon emitted in one part of the world will be reabsorbed in another,” she notes. “This has led to land grabs in areas where indigenous rights are not well recognized. It also disadvantages poorer countries who must account for their own emissions.”

Similarly, some firms will resort to greenwashing and outright scams as they look to establish their environmental, social, and corporate governance (ESG) credentials. Industry giant British Gas was recently accused of such a scheme. As Mahmud highlights, “an investigation found that almost half the carbon offsets held by British Gas owner Centrica are ‘junk credits’ that were issued under a discredited scheme.” She expects regulators to take initiatives in the coming year to curb such practices.

Substantial Russia sanctions enforcement penalties are coming

The Russia-Ukraine conflict has led to a closer partnership between the Treasuries of the United States and the United Kingdom. This partnership, says Mahmud, will make global regulatory enforcement easier, even as sanctions requirements rapidly tighten. She warns that sanctions compliance violations may result in heftier financial penalties in 2023: 

“With the dizzying economic sanctions and export controls directed against the Russian government, Russian banks, operating companies, and individual firms might find themselves subject to monetary penalties for inadvertently subverting these sanctions, leaving them exposed to significant fines.”

To help manage their risk exposure, compliance teams may wish to explore renewed risk assessments and gap analyses. Artificial intelligence-based applications and orchestration can also help close any gaps discovered and ensure ongoing compliance.

Prepare for a wave of crypto regulation 

2023 will almost certainly see a global crypto regulatory wave. Major legislative changes are planned in the EU with its Markets in Crypto Assets (MiCA) bill and in the US with the Lummis-Gillibrand bill. While the US legislation, in particular, still has some way to go before it becomes law, as two of the world’s powerhouse markets, reforms here will surely ripple worldwide. 

Though enforcement actions remain to be seen, firms should proactively review and consider new legislation to stay ahead of next year’s regulatory changes.

Key Takeaways

In 2023, proactive risk management will become more important than ever. With rising financial crime and new demand for compliance staff from platforms like super apps likely to drive demand for staff higher than ever, firms should plan to ensure they have the people, processes, and platforms in place that they will need. 

Firms would also do well to check that all risk assessments are up-to-date, performing gap analyses as needed. As risk data becomes more complex and budgetary pressures increase, efficient technology will increasingly support risk-based AML/CFT compliance. Risk teams should consider any areas where upgraded resources would improve risk detection efficiency.

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Originally published 22 December 2022, updated 06 January 2023

Disclaimer: This is for general information only. The information presented does not constitute legal advice. ComplyAdvantage accepts no responsibility for any information contained herein and disclaims and excludes any liability in respect of the contents or for action taken based on this information.

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