Banks was caught between a rock and a hard place

In today’s uncertain global financial environment, financial institutions (FIs) such as banks are exposed to high risk of default.

A recent report from Featurespace, a provider of financial crime prevention software, said the financial sector has been caught between an increasing number of financial crimes – especially scandals – and the idea that any solution will lead to additional problems and headwinds.

The report, titled The State of Fraud and Financial Crime in the US, stated that while 62% of financial institutions worldwide report an increase in fraud year-on-year, they are also hesitant to take action due to regulatory and technical challenges. .

According to Carolyn Homberger, president of the Americas at Featurespace, most risky bank managers don’t make real mistakes. Instead, as the report said, they are caught between a rock and a hard place.

“Our report found that two-thirds of executives saw the implementation of new fraud detection and anti-money laundering (AML) systems as a priority, but more than one-third cited the challenges of integrating new technologies,” he said. Homberger told Corporate Risk and Insurance. “Fifty-nine percent of respondents in our report said they are using a ‘wait and see’ approach until technology is ‘widely accepted’ or ‘well developed.’ This points to companies being at risk when it comes to fighting fraud and financial crime. This does not benefit anyone as a terrorist, and it does not affect anyone as a consumer who sees their confidence, trust and choice diminish with each attack. “

Smaller FIs, such as those with between US$5 billion and US$25 billion in assets, are at greater risk of fraud. Smaller banks and credit unions are often ill-equipped to deal with or support increased threats – the survey found that nearly three-quarters (71%) of smaller institutions reported an increase in fraud.

In addition, 68% of small FIs reported an increase in the dollar value of fraud, in contrast to large FIs, or those with assets over US$500 billion, where only 48% reported an increase. In terms of total fraud risk, 48% of small FIs reported a high level, compared to 39% of large FIs.

Despite the many risks, Mr Homberger said the survey showed the industry remains vulnerable when it comes to dealing with fraud and crime.

“What we have – together with our experience – shows that there is an interest in finding new solutions to the problems that are increasing,” Homberger said. “However, it appears that some organizations are continuing to wait before taking the plunge and benefiting from the fraudulent damage promised to those who are starting to think rationally.”

In order for banks to be effective in dealing with modern fraud, Homberger emphasized the importance of cooperation between the leadership in different businesses.

“Like any business, banks can be volatile institutions,” Homberger said. “Leaders of fraud prevention, AML, and data science must continue to work together to develop fraud prevention policies that are common to every bank. There is no one-size-fits-all approach to fraud, and it takes different perspectives to create an effective strategy.”

As fraudsters adopt more sophisticated tactics, banks’ risk management and security teams must also exercise to keep pace with increasingly sophisticated adversaries.

“We know that technology is the answer – financial institutions that use AI and machine learning report the lowest number of financial crimes, including fraud,” said Homberger. “For bank leaders, it is now important to adopt technology that helps reduce the risk of fraud in order to develop long-term fraud prevention strategies.”

Despite having the second largest banking sector in the world, US financial institutions have struggled to combat fraud and crime. According to Homberger, this is partly due to the lack of regular reports to analyze the financial crime situation in the market today.

“Additionally, banks need technology that helps them drive down fraud rates and make sure fraud doesn’t get any worse than it is now,” Homberger said. “The prevalence of fraud is irreversible, and as fraudsters grow, they will look for weak points in any banks’ anti-fraud systems. Implementing technology that supports fraud detection will be more beneficial than traditional, rule-based fraud prevention methods, and will create better ways to combat fraud in the years to come.