Monitoring for fraud and anti-money laundering in a post-COVID environment

In 2020, financial institutions as well as investment, asset management, and insurance firms experienced an 18% increase in costs associated with complying with rules designed to fight financial crimes – a task made even more challenging due to the rise of COVID-related fraud. According to the 1,015 survey respondents who participated in the LexisNexis Risk Solutions True Cost of Financial Crime Compliance Study, global compliance costs rose to $213.9 billion last year, with U.S. firms with $10 billion or more in assets spending $20.5 million, a 43.4% increase over the prior year.

More resources are being allocated to hire and train staff to implement and monitor multi-layer digital solutions, including data analytics, network security technology with artificial intelligence (AI) learning, active threat surveillance, and in some cases, costly remediation to address fraudulent activities. In fact, financial services companies provisioned a massive $1.15 trillion for these types of losses through the third quarter of 2020, a number expected to rise sharply throughout 2021 as criminal activity evolves to a constantly widening range of sophisticated, creative activities that exploit volatile economies and vulnerable consumers, and as fraudsters launder their ill-gotten gains.

The main challenge reported by the study’s North American participants is keeping pace with sanctions screening, followed by consumer risk profiling and Know Your Customer (KYC) onboarding tasks. Compliance officers should be examining, and perhaps rethinking, strategies to comply with anti-money laundering (AML) regulations impacted by major changes in the delivery of financial services that have shifted transactions to online platforms. For example, customers’ digital activities to send and receive funds open them up to pervasive phishing scams designed to capture confidential information that may be used in money laundering schemes, as well as expose IT networks to ransomware attacks that threaten operations and raise organizational risk profiles.

In the wake of the pandemic, financial services companies cannot let down their guard, and should continue to monitor, review, and adapt processes and policies using available and emerging technologies, or face formidable challenges in identifying and tracking fraudulent activity.

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