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The way forward for anti-fraud know-how

The rise of the latest internet technology in an increasingly globalized financial world has led to a parallel rise in financial fraud. Investors have lost millions of dollars over the past few years to securities fraud, neglect, and mismanagement.

How Can Companies Stay One Step Ahead in Fighting Fraud Using Technology? The good news is we’re already there.

SupTech and RegTech: innovation to support regulation and supervision

SupTech and RegTech are two terms that one often comes across these days under the umbrella of FinTech.

Supervisory Technology (SupTech) is essentially the use of artificial intelligence and machine learning technologies to support the supervisory tasks of a department within a financial institution that is tasked with maintaining corporate oversight, e.g. B. Due diligence or cybersecurity.

The same general principles can be found in Regulatory Technology (RegTech), which is more focused on using similar AI and machine learning tools and other forms of innovation in computer systems to re-establish regulatory compliance by a due diligence team within an organization to support bank or across multiple sectors and departments of a given financial institution.

We are increasingly seeing that both RegTech and SupTech are advertised and used by the regulatory authorities themselves. This happened at the G20 meeting of finance ministers in October 2020, at which the Financial Action Task Force (FATF) continued to make great efforts in 2020 to promote the inclusion of innovative technologies as boosters for compliance and security standards in the financial world.

From big banks and lenders like the Federal Reserve to state watch dogs like the Securities and Exchange Commission (SEC), expect a lot more SupTech and RegTech in the financial news in the next few years, especially when it comes to fraud prevention.

How does innovation help fight fraud?

Fraudsters often employ complex and multi-layered strategies to launder the criminal proceeds from illegal activities through a combination of shell companies or offshore accounts, labeling transactions with descriptions as vague and elusive as “advisory fees”.

WestPac’s recent disclosures of anti-money laundering violations in Australia (tens of millions) and subsequent settlement of a whopping $ 1.3 billion underscore that fraud is in a bank’s backyard (and on its own books) Regulators hold banks directly accountable. This clearly shows the critical role due diligence departments play in ensuring your bank is not fined billions of dollars for regulatory errors.

The technology enables financial institutions to look for suspicious and potentially fraudulent behavior. According to Deloitte, RegTech can offer transaction monitoring in this area, in which every single transaction is automatically checked against a series of parameters that can be used to quickly identify red flags.

The main indicators that regulators should look out for financial institutions as indicators of possible fraud include:

  • Repeated transactions of the same amount;
  • Foreign transactions involving jurisdictions that are considered lax by regulatory oversight;
  • High volume or repeated cash withdrawals;
  • Multiple addresses or changing addresses associated with a single account;
  • Multiple transactions from different accounts with the same IP address;
  • Attempting to conduct similar transactions for smaller amounts after a purchase or transaction has been marked and declined;
  • Repeated and inconsistent overseas shipping transactions.

The future of anti-fraud innovation is already here

While the previous examples are by no means an exhaustive list of red flags, until a few years ago, the previous examples used visual scans by bank due diligence staff, even when using computers.

Despite advances in software innovation, FinTech has been slow to gain acceptance among financial institutions in some developing countries and high risk countries. It is therefore no coincidence that a quarter of the world’s ships fly a Panamanian flag. There are no rules! But that is changing. The technology and innovation that we can imagine as the regulatory and supervisory technology of the future is already there. In addition, the G20 is pushing it into the regulatory and legal framework of financial institutions around the world.

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