Convergence of fraud and compliance in fight against financial crime

The fraud indus­try has evolved in the last ten years from focus­ing almost entire­ly on sim­ply stop­ping fraud and the sub­se­quent loss­es, to bal­anc­ing those objec­tives with main­tain­ing a strong cus­tomer expe­ri­ence and com­ply­ing with reg­u­la­to­ry change.

Simul­ta­ne­ous­ly, crim­i­nals have evolved and become more sophis­ti­cat­ed. Those fight­ing finan­cial crime may see mon­ey laun­der­ing and fraud as the busi­ness of dif­fer­ent depart­ments, but crim­i­nals see no such bar­ri­ers. Mon­ey obtained through fraud, or oth­er crim­i­nal activ­i­ty, is laun­dered through accounts almost seam­less­ly.

In today’s world of real-time pay­ments, hop­ping the pro­ceeds of crime through mul­ti­ple accounts and out of the sys­tem helps crim­i­nals to gain con­trol of their ill-got­ten gains, and foils the attempts of law enforce­ment to trace and stop them.

Tak­ing a more holis­tic approach to fight­ing finan­cial crime is chal­leng­ing. Many organ­i­sa­tions, par­tic­u­lar­ly those that have grown through acqui­si­tion, strug­gle with a lega­cy of mul­ti­ple-point solu­tions that are embed­ded into core busi­ness sys­tems. This results in silos and a lack of vis­i­bil­i­ty across the finan­cial crime life cycle; crim­i­nals take advan­tage of this.

A typ­i­cal enter­prise has both fraud and com­pli­ance depart­ments. The fraud team is pri­mar­i­ly respon­si­ble for fraud loss­es, while the com­pli­ance team helps the organ­i­sa­tion to stay on the right side of finan­cial crime leg­is­la­tion, most notably the reg­u­la­tions that gov­ern mon­ey laun­der­ing and tax eva­sion.

The depart­ments require much of the same infor­ma­tion and both must take appro­pri­ate action when finan­cial crime is sus­pect­ed, but if they don’t share infor­ma­tion then nei­ther has a full pic­ture of the cus­tomer. Numer­ous sys­tems are main­tained, which means main­tain­ing mul­ti­ple teams with their own skillsets that are not trans­ferrable.

Cus­tomers can become frus­trat­ed with the incon­sis­ten­cy, such as hav­ing to pro­vide the same infor­ma­tion twice, and cas­es are often pro­gressed inad­e­quate­ly when infor­ma­tion is not avail­able when need­ed. Run­ning in silos makes the depart­ments more cost­ly to run, increas­es loss­es and pre­vents less finan­cial crime, all impact­ing the bot­tom line.

“The fraud and com­pli­ance func­tions need to come togeth­er and take a holis­tic approach to the peo­ple, process­es and solu­tions they use,” says Matt Cox, senior direc­tor of fraud, cyber and com­pli­ance, Europe, Mid­dle East and Africa (EMEA), at FICO. “Then when the cus­tomer opens an account, or spends or moves mon­ey, the bank can check for mon­ey laun­der­ing and poten­tial fraud at the same time.

“If some­thing sus­pi­cious hap­pens, the cus­tomer doesn’t want two dif­fer­ent phone calls from the fraud and com­pli­ance teams. Too often that hap­pens these days, so con­ver­gence is a must.”

FICO is lead­ing the enter­prise man­age­ment approach to finan­cial crime by help­ing their clients tack­le both fraud and com­pli­ance. The ana­lyt­ics soft­ware firm, which has the world’s lead­ing pay­ments fraud man­age­ment sys­tem, iden­ti­fied the issues silos were cre­at­ing sev­er­al years ago and in 2016 it acquired TONBELLER, which has a large foot­print in the com­pli­ance space.

“For­ward-look­ing organ­i­sa­tions are con­sid­er­ing how they bring peo­ple, process­es and tech­nol­o­gy togeth­er,” says Mr Cox. “Over half of our clients con­sid­er a con­verged finan­cial crime oper­at­ing mod­el to be their next log­i­cal step. Con­ver­gence allows enter­pris­es to pro­tect all chan­nels, pro­tect their cus­tomers, cre­ate a con­sis­tent cus­tomer expe­ri­ence and max­imise loss pre­ven­tion and rev­enue. At the same time, insti­tu­tions can remain com­pli­ant and can take more respon­si­bil­i­ty for finan­cial crime across the life cycle.”

FICO’s approach to tack­ling all aspect of  finan­cial crime builds on its sig­nif­i­cant his­to­ry of using arti­fi­cial intel­li­gence and machine-learn­ing. FICO uses mul­ti­ple, patent­ed machine-learn­ing tech­niques to look for behav­iour­al anom­alies that could indi­cate either fraud or mon­ey laun­der­ing.

“We were the first to bring machine-learn­ing to fraud in the US and then took it around the world,” says Mr Cox. “Now we’re apply­ing the tech­nol­o­gy to beat more types of finan­cial crime.”

For more infor­ma­tion please vis­it FICO.com/fraud