Three financial crime trends every bank should know of in 2024

ComplyAdvantage has published its State of Financial Crime report. Built on a survey of 600 senior financial crime decision-makers worldwide, alongside experience working with more than 1,000 companies globally, it looks at the trends and challenges that will shape compliance in the year ahead.

Financial crime trends every bank should know

Packed with practical tips from Regulatory Affairs experts, the report explores the major trends and topics set to shape the year in compliance.

key findings include:

• AI and automation: 89% of firms say they’re comfortable comprising explainability for automation when deploying AI in their AML tech stacks. But how does this compare to regulators’ expectations?
• PEPs and elections: 61% expect to take a more risk-averse approach to PEPs in the next 12 months. With 40+ national elections scheduled for 2024, will firms be able to keep up with the changing volumes of PEPs?
• Real-time payments: 90% have joined – or will join – a real-time payments program. What steps must firms take to prepare their AML programs for faster payments?
• Compliance investments: 49% of firms plan to add new technologies or capabilities, with 46% upskilling their compliance team. Can investments keep up with the growing complexity of financial crime?

Doing more with less: The rising cost of compliance

Banks are facing a more complex financial crime and geopolitical landscape – but compliance budgets are not rising in line with these risks. As a result, decision-makers must find ways to operate more efficiently. Our survey will show a particular focus on two key strategies.

The first is targeted investments in new technologies.

For example, we are seeing particular interest in artificial intelligence-based (AI) use cases that don’t rely on ‘ripping and replacing’ entire parts of the compliance tech stack.

Overlays to existing transaction monitoring platforms that help prioritise alerts based on risk are one powerful way to focus analyst time where it is most impactful.

The second trend is investment in upskilling existing team members. In a competitive labour market where, new headcount will be limited, this makes sense.

Banks may wish to focus this training on several areas, including emerging threat patterns, the explainability of AI models, and the ever-growing area of sanctions compliance.

Real-time payments continue to transform the landscape

The real-time payments landscape continues to shift and evolve. One key engine for growth has been Open Banking.

Open Banking continues to take the world by storm through application programming interfaces (APIs) sharing data between financial institutions and third-party service providers to make real-time payments.

By 2030, the Open Banking market is expected to hit $135 billion, with the UK and the EU front and centre.

Over 60% of the population was expected to use open banking in the UK by the end of 2023.

The survey will show high levels of enthusiasm for real-time payment programs – very few major UK financial institutions will not have joined one by the end of 2024.

While these innovations are welcome, firms must re-think how they fight financial crime.

Not only is the volume of payments and transactions that must be monitored across different payment systems increasing but so is access to the traditional financial system via different avenues.

There is also regulatory divergence and a lack of data standardisation on how customer due diligence checks and monitoring should be carried out for real-time payments, mobile payments, and payments and services offered in apps.

Information previously seen by banks may also be reduced as transactions are processed via third parties using an API structure.

The ability to stop fraud and money laundering in real-time or via mobile apps remains challenging.

In the UK, the Payments Systems Regulator (PSR) has introduced confirmation of payee (CoP) on instant payments to check that account name and details match to address authorised push payment fraud and prevent accidental payment errors.

The PSR is also introducing reimbursement requirements for victims of authorised push payment (APP) fraud in 2024. As a result, tackling this increasing challenge will be a sharp focus for the payment industry.

AI: Fault lines between firms and regulators are emerging

2024 will be a consequential year for regulating AI worldwide, with national governments and international bodies publishing a range of frameworks.

The survey highlights some early tensions between financial institutions and regulators in this regard.

Some banks are, for example, comfortable compromising the explainability of AI models in exchange for greater automation and efficiency. This creates potential tension with regulators, who have emphasised the importance of clear audit trails.

It could also generate challenges with banks’ customers, who will increasingly want to know where and how AI models have been used to make decisions about the financial services they can access.

Again, the survey suggests many financial institutions are not prioritising this element of the customer experience.