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Financial Crime Compliance is Ripe for Innovation – What Banks Need to Do?

Guest Post | Ryan Jason | Nov 7, 2022

Financial crimes and money laundering - Financial Crime Compliance is Ripe for Innovation - What Banks Need to Do?Financial crime has become a grave concern for global law enforcement authorities in the past few years. With all the emerging technologies and rapid digitization, all financial operations are becoming digital, ultimately making space for cybercriminals. Banks are thought to be an essential pillar of any economic setup, and in the modern system, all jurisdictions rely on them to accomplish their monetary targets. Due to the influx of revenue in banking sector, it has become a hotspot for criminals who are looking to carry out multiple scams like money laundering, identity theft, and terrorist financing.

In Canada alone, consumers lost $379 million in 2021 to various online fraud, which is an increase of 130% compared to the previous year. This surge in crime percentage has led the authorities to find an effective solution to countering fraudsters and report them to law enforcement agencies. It is estimated that the financial industry spent an average amount of $37.1 billion in 2021 on Know Your Customer (KYC) and Anti-Money Laundering (AML) systems. While the banks have their own systems, it's seen as a big opportunity for fintechs who are using innovative tools and approaches that can augment bank KYC etc.

Prevailing Financial Crimes in Banking Sector

Although the banking system has become quite advanced in the past few years, criminals are also using intelligent techniques to defraud it and carry out financial crimes. Money laundering, terrorist financing, identity theft, and other monetary scams are the most prevalent crimes in the banking sector. Almost all the banks are offering their users to perform transactions using mobile apps or websites, for which they have to input their sensitive details to log in to the system. As soon as the consumers enter their information, they get exposed to cyber criminals who can further use their details to take over their accounts or make new ones on their names to carry out their illicit motives.

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Money laundering is another prominent issue that has engulfed the banking sector. In 2019 alone, 60.5% banks were fined due to anti-money laundering regulations violations, costing $10 billion. Global financial watchdogs, particularly Financial Action Task Force (FATF) and Interpol have formed a comprehensive AML framework for the banking industry to counter money launderers. Law enforcement authorities have found a lot of cases where terrorists have been found to use laundered money in various heinous crimes. This has intensified the overall situation and urged global agencies to implement the perfect solution to make this world a secure place.

How Banks are Ensuring Compliance

Banks are making considerable investments to integrate KYC/AML solutions, the latest fraud preventive innovations from Fintech. Know Your Customer (KYC) measures encompass biometric verification of users in real-time and further comparing these details with the ones on their documents. In this way, the system becomes efficient enough to identify the fraudsters while restricting them during onboarding. Moreover, to ensure AML compliance, financial institutions usually screen their users' data with the one accumulated by FATF and other agencies in the form of sanctions lists. In case of any same name, they report to the concerned authorities to track the criminal down.

Financial Crime Compliance - A Step Towards Innovation

All financial institutions, particularly banks, insurance companies, and crypto exchanges, need AML and KYC solutions to make their operations secure for users. With criminals using more advanced techniques to defraud the system, Fintech companies are also investing in developing more accurate solutions to counter scammers.  KYC practices, including thumb verification, facial recognition, and document authentication, are evolving daily. Video and Perpetual KYC are prime examples of innovation that have developed as a result of financial compliance in the banking sector. So it would not be wrong to say that while accepting the global KYC/AML standards, the sector has embraced huge innovation and opened new doors to identify criminals.

How the Pandemic Helped the Companies to Embrace Transformation

The COVID-19 pandemic proved to be a turning point in the global digital transformation when a large number of businesses were forced to shift their operation on the internet due to lockdowns. With this rapid digitization, cybercriminals rigorously started their fraudulent activities exploiting loopholes in the nascent system. It is estimated that digital scams increased by 72% during the pandemic, and this surge in illegal activities urged the authorities to counter scammers through advanced screening solutions.

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Although the pandemic's effects are now diminishing worldwide, it has helped a lot in achieving innovation in security measures which ultimately aid in countering criminals and bringing them under the law. So it would not be wrong to establish that financial crime compliance has played a considerable role in adopting the most innovative concepts of screening measures.

The Role of Fintech Companies in Enforcing Screening Measures

Fintech is the sector that has suffered huge setbacks from cybercrimes, but it managed to counter scammers by finding innovative solutions like Anti-Money Laundering (AML) and Know Your Customer (KYC). With the passage of time, these screening services keep on improving and become smart enough to counter the advanced techniques of fraudsters. Currently, all the security measures are powered by AI algorithms and efficient enough to provide results in a matter of seconds with the highest level of accuracy.

Final Thoughts

Combating financial crimes, particularly money laundering, identity theft, and terrorist financing, is quite crucial for ensuring transparency in the banking sector. A large number of financial operations have already been digitized, and time is not far away when the whole economic system will be working online, which will surely increase cybercrime. As criminals are using advanced techniques with time, it is the need of the hour to find more innovative solutions to counter the prevalent scams and report all the bad actors to law enforcement authorities. Fintech has successfully achieved this target so far and controlled the fraudsters to a large extent.

NCFA Jan 2018 resize - Financial Crime Compliance is Ripe for Innovation - What Banks Need to Do?The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit:

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