Finance
Enough is enough. Banks must stop turning a blind eye to financial crime
Global Banking & Finance Review®
Company
By Ivan Zhiznevskiy. Co-Founder and CEO, 3S Money
The United Nations estimates that up to $2 trillion is laundered every year. Shockingly, they also estimate that banks help catch less than 1% of this crime. And, sadly, the UK ranks second in the money laundering hall of shame.
Fintechs are sometimes blamed for this, with some being branded as an open door for dirty money. Yet in reality, dirty money has little to do with Fintech and more to do with larger banks who play a bigger role in its existence. There’s no doubt more needs to be done to tackle this growing issue, and banks should strive to take advantage of Fintech’s technological capabilities to do so.
Busting the dirty money myth
Fintechs are not isolated players. The vast majority can only operate because they have access to established financial institutions’ infrastructure. And, what’s more, the majority of Fintechs proactively want to stamp out dirty money.
Unfortunately, the false narrative that Fintechs are the cause of financial crime is widely prevalent and must be debunked. If it isn’t, Fintech risks gaining a reputation that is not only incorrect, but potentially damaging. It paints over all the good the industry has done in the world – enhanced financial health, wellbeing, and inclusion – and can harm both consumer and businesses’ trust in Fintechs.
Research has revealed that 12% of Fintechs say the collective effort to tackle money laundering is not good enough, and 39% cite corporate and investment banks and traditional banks (27%) as the three sectors they consider most at risk.
Governments and Fintechs across Europe have been trying to shake up the payments business for years and wrestle control from global banks to help reduce costs for citizens. The real culprits here are the incumbent banks who have naturally been threatened by the innovative and disruptive nature of Fintech. But it’s time they stop turning a blind eye to the issue and face financial crime head on.
Taking a page out of Fintech’s book
Current anti-money laundering (AML) compliance processes are made up of high levels of manual, repetitive and data-intensive tasks that are no longer fit for purpose when it comes to detecting financial crime. Even though that’s the case, there’s a lack of drive from banks to modernise their systems. They need a new mindset.
Nearly half (46%) of Fintechs, a figure that reaches 60% for those with revenue above £500m, view new technologies such as AI and advanced analytics as one of the most efficient ways to improve the fight against money laundering. Banks need to up their game and follow their lead and take advantage of these new technologies to tackle financial crime.
The time is now for banks to take advantage of Fintechs’ capabilities, such as exploring AI to reduce fraud. AI has the potential to enable notable changes in AML capability and underpin a platform that can scale and adapt to the growing threat of modern financial crime. But to be on the front foot, banks can adopt their technology and processes to deal with it in the best way. And Fintechs can be their friend, not foe here.
Traditional banks are complex, with multiple product lines, distribution channels, business units and systems. Whereas Fintechs, by their very nature, are not encumbered by legacy systems, meaning they can quickly implement cutting-edge solutions to combat growing fraud and money laundering.
Every bank and Fintech needs to be able to predict a problem before it becomes a threat. The AI-powered solutions that many Fintechs provide can detect advanced fraud and manipulation earlier and faster than ever before.
The use of machine learning and AI to combat fraud isn’t novel. It’s been around for a while, and these technologies bring a lot of unique strengths to the table. However, many of the AI and machine learning solutions being used aren’t living up to the technology’s potential in banks.
The fight against financial crime is a huge challenge for financial institutions around the world. It’s time for banks to work with Fintechs to adopt advanced technologies that enhance security measures. Ultimately, it’s working closely and using each other’s areas of expertise that will allow both banks and Fintechs to remain one step ahead of the criminals.
Financial crime refers to illegal activities that involve the use of financial systems or funds, such as money laundering, fraud, and embezzlement.
Anti-money laundering (AML) refers to laws, regulations, and procedures designed to prevent criminals from disguising illegally obtained funds as legitimate.
Fintech is a term that combines 'financial' and 'technology' and refers to the integration of technology into offerings by financial services companies to improve their use of financial services.
Compliance in banking refers to the adherence to laws, regulations, and guidelines that govern financial institutions to ensure ethical operations and protect consumers.
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