Megan Butler, Executive Director of Supervision – Investment, Wholesale and Specialists, talks about the following during here speech: Financial crime and the criminal activity it facilitates causes incalculable damage to society – our joint endeavour is to monitor entry, devise controls and erect barriers powerful enough to stop criminals from causing further harm. New technologies give us unprecedented access to innovative products and services, and flexibility in how we use them. But they also give criminals sophisticated tools to bend the financial system to their own ends. Used to the right ends, these technologies can be gamechangers in the fight against financial crime – both for industry and the regulator.
Increase in fraud offences
Fraud accounts for around one third of all crimes experienced by individuals. And in the last year we’ve seen a 17% increase in fraud offences, driven by an increase in bank and credit account fraud to 3.8 million offences. Whether inflicting punishing personal losses or threatening the ability of organisations to stay in business, the impact of these offences is devastating. There are, of course, already requirements in place that aim to combat fraud, money laundering and terrorist financing across the financial sector. These requirements focus on the need for effective systems and controls in firms to detect, disrupt and stop criminal activity. But the fast pace of technological change and ever-evolving nature of criminals means that these systems and controls do not always change as quickly as the threats themselves.
Our joint endeavour is to monitor entry, devise controls and erect barriers powerful enough to stop criminals from causing further harm. The task is daunting. New technologies are exciting and innovative. They give us unprecedented access to new products and services and flexibility in how we use them. And they are popular. More than 5 million people chose to lead an almost cashless lifestyle this year according to UK Finance. But they also give criminals sophisticated tools to bend the financial system to their own ends – the anonymity granted by virtual currencies being one well-known example. And with debit cards now the most popular method of payment, the opportunities to exploit weaknesses in the system are evolving. And yet, these same technologies, when used to the right ends, could also be game changers in the fight against financial crime.
Lots of people talk about technology as an enabler of financial crime. But today I want to focus on how technology can be used to detect and disrupt financial crime, and ultimately the criminals who seek to exploit the system.
The challenge we face
Let’s first take a moment to consider this issue in context. The UK’s financial sector facilitates about £90 trillion changing hands every year, amounting to tens of billions of transactions. And last year alone there were 39.3 billion payments made in the UK. A proportion of these transactions will relate to criminal activity. We don’t know much – and identifying which ones is an enormous challenge, one that is only getting harder as criminals, aided by technological innovation, develop ever more sophisticated schemes.
Firms do not always have the complete picture when searching for patterns amongst vast amounts of data. The 2,000 firms who were involved in our first annual Financial Crime Data Return told us is that they collectively spent over £650 million a year on dedicated people to combat fraud, laundering and other financial crimes. And that didn’t include the efforts of branch staff dealing with customers at counters, who are at the front line of the industry’s efforts to tackle fraudsters and money launderers. Those firms made over 360,000 Suspicious Activity Reports to the National Crime Agency in 2017, and identified nearly 120,000 Politically Exposed Persons. So we already know that, on the whole, most financial institutions are not complacent about the risk and we can still see this from the figures we continue to collect.
Cost of fighting crime
Since we first carried out this survey, we have seen more firms wanting to participate, and we will be publishing our latest data next year. That in itself presents its own challenges in drawing out trends, but gaining a broader understanding of what is going on across the industry can only be a good thing. What the latest results already reveal is that the collective resourcing cost of the fight against financial crime among these firms now comes to over £1 billion each year. That in itself may not come as too much of a surprise, but among the larger survey group what we also see is that the numbers of Suspicious Activity Reports and identified Politically Exposed Persons have not grown in the same proportion. Spotting bad behaviour is not easy, particularly when it lurks within an ocean of legitimate activity.
It is too early to pin-point definitively why that might be the case. But what we can say is that our data-led approach enables us to bring these sorts of questions to the surface in a way it hasn’t been possible to tackle before. And it also allows us to deploy our resources and efforts in a quicker and more targeted way, as emerging areas of harm are identified. What certainly remains the case is that spotting bad behaviour is not easy, particularly when it lurks within an ocean of legitimate activity. The so-called ‘needle in a haystack’ challenge.
The way firms approach this challenge varies. But what is clear is each and every firm who is part of a transaction chain has a responsibility here, for example checking who their client or customer is. For some it’s a mixture of machine and manual processes – technology is used to flag up risks but banks still rely on thousands of staff to manually review those flags. What we might call ‘checkers checking the checkers’. Some firms are automating existing processes through the use of compliance technology, helping them keep on top of volume and reduce false positives in transaction monitoring. Some are going even further. We are seeing an increasing number of firms applying intelligent technology to tackle financial crime – including AI, robotics, natural language processing and machine learning.
Continuous innovation is vital
Continuous innovation is vital if we’re going to stop criminals in their tracks. In particular, it is becoming increasingly apparent that disrupting financial crime in real time is a key frontier. This is certainly true of fraud – stopping it before it happens. AI and machine learning could really make the difference here. From AI-driven impersonation checks to verify whether photos in different ID documents match, to the use of machine learning to identify high risk customers who may warrant deeper background checks – AI and machine learning could be turned to real, practical uses in the fight against financial crime. Not to mention harnessing machine learning to detect fraudulent patterns in real time and with greater accuracy – making it possible to identify if that really was me buying coffee in Kings Cross yesterday or a fraudster.
Now as a regulator, we are ‘technology neutral’ – I’m not going to tell you whether you need to automate all your systems or question why you aren’t using AI in every part of your business. But we all need to experiment with new technology, and together see how we can tackle criminals who want to exploit the financial system. We focus on outcomes – and if a new innovation can help reduce harm, we welcome it. We all have a public duty to explore all opportunities to combat crime. Together, we need to turn technology against criminals. (…)
Read the full version of the speech on the website if the FCA.
Source: https://www.fca.org.uk
