What should an FI budget for to mitigate financial crime in 2024?
2023 has been an interesting year for the technology sector and payments. Perhaps the most significant tech note for the year is the rise of Generative AI (GenAI). In the banking sector, 75% of banking executives see GenAI as significantly impacting their industry, according to the Economist Impact study. On the payments front, notable movements include the e-Wallet, faster payments, embedded finance, and adoption of the messaging standard ISO20022. These evolutions in payments and technology are opening opportunities for financial criminals.
Eastnets explores some financial crime predictions and what your organization should budget for to ensure you are ahead of the next wave of financial crime attacks.
Automating synthetic identity
Generative AI has been nothing short of an explosion in the tech sector and beyond in 2023. On the plus side, GenAI is already becoming part of automation in banking and other financial services. But the Ying of Generative AI use also has a Yang. As the LLMs behind GenAI mature, the likelihood of exploitation of the tech by cybercriminals increases. One of the areas likely to receive focus from attackers is verified digital identity and KYC/CDD compliance. Where 2023 and earlier years emphasized account takeover, 2024 will be the year of automated synthetic verified accounts.
GenAI provides an accessible tool facilitating cybercriminals to generate fake identity details, including images, videos, voice recordings, and identity documentation, coupled with the automation of real identity data gathering, and the whole process of synthetic identity is ramped up to industrial scale. The result is that KYC/CDD processes will be targeted, and maintaining robust verification will be a challenge.
Cross-border revolutions for B2B payments
Cross-border payments have been the sticking point preventing a seamless payments landscape. However, the planets are aligning to change this situation, with real-time payments, regulatory cooperation across jurisdictions, and distributed ledger technologies (DLT) helping to reduce the complexities of cross-border payments. Research shows that this movement will translate into growth, with a 120% increase in B2B cross-border eCommerce expected between 2023 and 2030. Strong payment growth is also a call to arms for financial criminals likely to target B2B payments. Watch out for targeting of B2B instant payment platforms as cross-border payments soar.
Watch this webinar to learn how regulatory cooperation can help mitigate financial crime: How regulators cooperate to combat financial crime.
Instant payments uptake speeds up
Cybercriminals love anything that makes detection of illegal activities difficult. As our payments ecosystem expands to include new payment methods, and as payments speed up, catching these criminal activities will become even more challenging. Faster payments have seen massive uptake in 2023, which is expected to continue in the coming years; Clearing House RTP Network announced 58 million transactions in Q2 2023, up 41% on the same period in 2022.
Real-time and instant payment platforms continue to mature worldwide; the long-awaited FedNow service operates in the US, and the Federal Reserve announced increasing platform uptake. Instant payments offer opportunities to evade detection when carrying out illicit activities. As such, financial crime detection in real time will become essential in 2024.
Does the Basel Index offer insights into financial crime in 2024?
The Basel Index provides a measure of money laundering and terrorist financing risks across the world. The Basel Index scores the risk level up to a maximum of 10. In 2023, the ML/TF risk level was 5.31, up from 5.25 in 2022. As part of the ML/TF landscape analysis, the Basel Index also explores the current AML/CFT frameworks and systems. The main concern of the Basel research is that these frameworks and systems need to be more effective. The implication is that as the financial landscape evolves, the measures to handle the exploitation of these changes are not evolving at a fast enough pace.
The inflection points in the evolution of the payments ecosystem are instant payments and intelligent technologies. Protection of this ecosystem must be met with similarly intelligent technologies and regulatory cooperation across jurisdictions. FIs and banks need to decide the best use of budget to ensure they can protect against financial crime that uses speed and obfuscation to evade detection.
Where should budget and focus be in 2024 to mitigate financial crime?
The changes in the tech and payments landscape in 2023 have meant that payment fraud and financial crime will be even more challenging in 2024. Financial criminals will take advantage of the use of GenAI to trick KYC/CDD and will exploit complex instant and cross-border payments. Financial criminals use integrated attack methods so an FI must react in the same way, applying integrated measures informed by a risk-based approach; this should determine budget spend. Eastnets recommendations the following areas to focus people and budget on:
Policy updates: technologies, tactics and techniques are evolving in the payment fraud and financial crime landscape. Policies should be updated to reflect these changes. Anti-financial crime measures and procedures should be addressed to ensure they are still appropriate and effective.
Internal and external collaboration and education: “Two heads are better than one” should be your 2024 phrase of the year; spend the budget building collaborative bridges between anti-fraud, cybersecurity, compliance, and relevant external security vendors and teams. Together, you can work out cohesive strategies to tackle complex financial crime..
Integrated anti-financial crime measures: payment fraud and financial crime are set to become more complex. Financial criminals will exploit all parts of the payment ecosystem, obfuscating activities, disguising illegal funds, passing them through multiple offshore accounts, etc. Integrated anti-financial crime measures detect suspicious activity and anomalies across the payment ecosystem from account registration to transaction. These solutions use intelligent technologies, such as AI, Natural Language Processing (NLP), and behavioral analytics, to spot unusual activities.
Action in real-time: real-time is what 2024 will be all about. Financial crime will take advantage of faster payments. Therefore, measures that work across the payments ecosystem must act as the event happens. Real-time monitoring and the use of DLT to handle fast-changing PEP sanctions are essential as the financial crime landscape becomes real-time.
Talk to Eastnets experts about our integrated and real-time anti-financial crime solutions.
