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Launching AI-driven Fraud Detection

Why hiring isn’t (always) the most cost-effective way to combat rising financial crime

Written by Andrew Davies

I spend a lot of time on the road talking to senior compliance experts at financial institutions worldwide. Over the last few months, one of the most common questions I’ve been asked is: ‘I think financial crime will rise this year. How can my organization prepare efficiently?’ 

Our global compliance survey for 2023 bears this out. 59 percent of firms are preparing for a rise in financial crime this year. At the same time, 99 percent are re-evaluating their risk appetite due to global economic uncertainty and the ongoing transformation of payments. Put together, this means many firms are being asked to do more with limited resources. 

In this article, I break down the three top challenges with the current approach many financial institutions are taking to this problem and recommend a better, faster course of action.

Challenge #1 – The compliance hiring market is white hot 

When asked how they plan to combat rising financial crime, 58 percent of firms said they intended to hire more compliance staff. Compliance leaders looking to hire in this market face substantial headwinds. The top concern for compliance and financial crime hiring managers is the insufficient technical or regulatory knowledge of candidates (70 percent), followed by salary expectations (53 percent), according to Barclay Simpson, a specialist recruitment firm. Such is the level of competition in the market, 96 percent of candidates say that, even with the high level of hiring manager concern about regulatory knowledge, they’re confident about their prospects. Barclay Simpson even reports some “extreme examples” in which candidates are receiving offers at 40 to 50 percent above their existing base. Put simply, firms trying to hire their way to a stronger compliance team better have deep pockets and a lot of patience. 

Challenge #2 – More analysts won’t solve data problems

Even in a cooler hiring market, simply bringing more staff on board won’t solve an organization’s problems. Global anti-money laundering (AML) fines surged by more than 50 percent in 2022, with banks alone – typically better staffed than many other financial institutions – stumping up more than $2 billion in penalties. At the root of the challenge is a data problem. When asked in our survey which area of their compliance function would be at risk in an audit, 46 percent cited data management. Firms I speak to are often overwhelmed by a data deluge their structures and processes are not set up to combat. Relevancy and coverage are major issues of growing concern. As a result, false positive rates are too high, and the quality of data available limits analysts’ ability to make smarter, faster decisions. Rising financial crime will bring with it more data, further pressuring firms’ existing resources and infrastructure.  

Challenge #3 – Financial crime is getting more complex

The final layer of this challenge is that the complexity of the financial crime firms are trying to detect and prevent continues to rise. For example, in 2022 concern about environmental crime surged. When asked in our survey which predicate offenses were most important to their organization, more than one in four selected environmental crime, reflecting the threat posed to food security, political stability, conflict, and forced migration. Added to this are trends like the growing diversity of ransomware. The Financial Crimes Enforcement Network (FinCEN) revealed that, compared to 2020, reported ransomware incidents in the second half of 2021 increased by more than 50 percent. It can be harder for in-house compliance teams, operating without a contextual view of emerging trends in other similar firms, to get a full and early view of what these risks are. This in turn makes it harder to develop proactive strategies to combat them. 

Scale quickly and effectively with regtech

Anyone who has met me will know I’m an eternal optimist and, even in the most challenging financial compliance landscape I can remember, there are reasons to be hopeful. Regtech providers like ComplyAdvantage are able to help firms meet many of the challenges listed above. Here’s how:

  • Deep in-house expertise from implementation to customer success: Depending on the complexity of their use case, we can onboard clients in as little as two weeks. Throughout this process, firms have access to a sandbox to test and iterate, as well as a dedicated implementation consultant. Like the customer success manager who supports the client through their time with us, they’re an expert in the sector(s) they serve. They can provide proactive recommendations on how firms can achieve their goals, and flag risks other similar firms are monitoring for that they may not have anticipated. Ultimately, this saves valuable time and money by minimizing wasted effort and maximizing the efficiency of any changes that are implemented.
  • Pre-built scenarios and collateral: Not only do pre-built scenarios make implementation and ongoing optimization more efficient, but they also help to combat data quality issues and keep firms ahead of emerging typologies. All the pre-built scenarios ComplyAdvantage offers derive from our rich dataset, our understanding of regulatory obligations, and our work with over 1000 customers worldwide. Scenario libraries, API guides, and sample data for testing can also make a significant difference, streamlining processes and helping analysts focus on their day jobs.
  • AI-based alert prioritization: The growing complexity and volume of data firms face means manual processes built on rigid rules simply are not sustainable. That’s why ComplyAdvantage has invested heavily in building an AI layer that can sit across our – and any – transaction monitoring platform. This helps analysts determine which alerts present the greatest risk to the business, reducing false positives while delivering greater efficiency, transparency, and explainability. 

What are you waiting for?

If there’s one piece of advice I can share from my decades of experience in the financial risk management industry, it’s this: Don’t put off tackling the fundamentals. Many firms are re-evaluating their risk appetite this year – that’s understandable. But, to be clear, doing nothing is not playing it safe. In a volatile environment where financial crime is rising, the most dangerous thing compliance teams can do is nothing.

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Originally published 15 March 2023, updated 17 July 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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