At the start of the new decade, not too many companies were expecting to face a challenge as large as COVID-19.
Yet here we are, and like many other industries, the financial industry is ill-equipped to tackle the economic fallout resulting from this once-in-a-generation pandemic.
Industry experts at Celent predict that we are entering a period of increased vulnerability to fraud and other financial crimes as a result of opportunistic criminals taking advantage of the public’s fear. If banks and other financial institutions weren’t reviewing their anti-money laundering and cybersecurity infrastructure before, the coronavirus should be a wakeup call to start modernizing their processes.
Even before the coronavirus crisis, many risk managers and AML specialists can attest to the fact that their workloads are higher than ever before. With the evermore sophisticated techniques criminals are using to defraud victims along with the unbaiting obligation to comply with the latest regulations, those working in risk management and fraud prevention need to work long hours just to keep up. Unfortunately, COVID-19 has presented an ideal opportunity for fraudsters to engage in all types of schemes. Celent reports that ID theft and account takeovers are on the rise as an anxious public is more susceptible to phishing scams. Payment fraud is also on the rise as people are unwittingly turning to counterfeit websites to try to purchase in-demand items such as facemasks and hand sanitizer. In addition to these, social engineering and investment scams are also rising in the midst of the corona scare. It’s not just consumers who are being taken advantage of, with many banks’ normal operations affected by this outbreak, they are more vulnerable to internal fraud and cyber threats. Bad actors are capitalizing on this moment of decreased oversight to steal from banks.
The actions the financial sector must take to respond to these threats will not be simple or quick. Financial institutions must ensure their customers are well informed about the common scams that unfortunately occur in times of crisis. They should also take note of the changes in both their customers’ behavior as well as the behavior of criminals in these unusual times. In addition to these precautions, banks need to incorporate artificial intelligence and machine learning into their AML and cybersecurity infrastructure. Due to the unerring nature of their industry, banks have traditionally been apprehensive to adopt new technology in the risk management space. If banks are to keep up with the increase in fraud and cyber threats, they need to more readily adopt modern solutions to support them in their formidable mission.
By embracing artificial intelligence, banks can see increased efficiency across the board. For example, financial institutions at the forefront of digitization are implementing AI into their AML procedures to not only support but enhance their current infrastructure. With cutting-edge AI utilizing machine learning to spot and understand relationships and similarities between financial data, banks can increase their effectiveness at detecting and reporting suspicious activity. Double blind studies have shown banks can decrease their rate of false positives significantly when implementing AI into their AML processes. This increased efficiency can help relieve AML analysts’ workload so they can better tackle the increase in financial crime that we are currently seeing and will inevitably see again in future crises.
Although the current economic outlook does not look reassuring for any type of spending, financial institutions that make smart investments now will be rewarded by future success and less financial loss in the next crisis. It’s a fact that risks to businesses are increasing and the next crisis, whether it’s the result of climate change, economic/geopolitical turmoil, or future pandemics, is simply a matter of when. This experience should be used as an opportunity to strengthen and better prepare for what the future has in store.
Author: Sanah Hamad, Business Development Manager at Comarch