Industry Insights: Addressing Anti-Financial Crime Challenges

May 22, 2024 by Verafin

In today’s financial industry, the fight against financial crime looms large. Financial institutions are contending with a global $3.1 trillion financial crime problem, charged with safeguarding the integrity of the financial system in a landscape fraught with costs, complexities, and a lack of clear priorities. In this evolving environment, Nasdaq’s Global Financial Crime Report has exposed three key challenges that are essential for the industry to address to fight financial crime more effectively. 

Challenge #1: Inefficient Processes & Technology

As financial institutions attempt to strengthen their anti-financial crime programs to meet regulatory demands and combat evolving threats, a lack of adequate resources and technology remains a challenge. Three quarters of survey respondents stated their institutions had increased headcount from 2022 to 2023, yet 47% still did not feel they had sufficient resources to fight financial crime. 

 At the same time, conventional approaches are exacerbating workloads and increasing operational costs. From rules-based systems generating massive volumes of false positive alerts to inefficient manual processes hampering investigations, record-keeping, reporting, and other critical compliance processes, there are significant process and technology barriers to efficiency and effectiveness in fighting financial crime.

These factors significantly impact the ability of financial institutions to effectively keep pace with financial crime risks, while ensuring compliance with regulations. 

As financial institutions navigate burdensome and at times conflicting regulatory obligations and the evolving financial crime threat landscape, survey respondents generally recognized that the limitations of their current anti-financial crime capabilities would necessitate substantial changes to their systems and processes.

Challenge #2: Lack of Measures of Success

Financial institutions need clear guidance from regulatory authorities on how to evaluate the effectiveness of anti-financial crime programs. As indicated by survey respondents the number of SAR/STR filings is among the most common measures of effectiveness. Yet, without context of the value of the intelligence provided within reports or their usefulness to law enforcement, such as through feedback loops between the public and private sector — the count of reports filed cannot accurately reflect the true effectiveness of anti-financial crime programs. 

Ongoing feedback from law enforcement directly to financial institutions on the outcome of reports filed would provide valuable input and measures of effectiveness, as well as timely insights into current threats would be of greater importance when it comes to fighting financial crime.

Challenge #3: Preparing for the Future

As the industry looks ahead to the next 5 to 10 years, concerns remain over maintaining compliance while keeping ahead of emerging financial crime threats. Financial institutions are already working to manage a careful balancing act between adjusting to evolving regulatory obligations while allocating appropriate human and technological resources to fight financial crime. In the face of these challenges, the industry recognizes a need for collaboration and innovative approaches, such as artificial intelligence (AI), to amplify their financial crime prevention efforts.

Rising to the Challenge with Innovation & Collaboration

The fight against financial crime requires a collective effort from all stakeholders in the financial ecosystem. Addressing these challenges is not just a necessity but a strategic imperative for financial institutions to fortify their defenses, safeguard the integrity of the financial system, and protect communities from the insidious impacts of financial crimes. 

By embracing innovation and collaboration, institutions can navigate the complex terrain of financial crime with resilience and efficacy. Private-to-private and public-to-private collaboration models and AI-driven technology solutions represent key opportunities for concerted action — and will prove essential to safeguarding the financial system in years ahead. 

 For more on the financial crime challenges facing the industry and opportunities for action, download your own copy of Nasdaq’s 2024 Global Financial Crime Report. 

Verafin is the industry leader in enterprise Financial Crime Management solutions, providing a cloud-based, secure software platform for Fraud Detection and Management, BSA/AML Compliance and Management, High-Risk Customer Management and Information Sharing. Over 3800 banks and credit unions use Verafin to effectively fight financial crime and comply with regulations. Leveraging its unique big data intelligence, visual storytelling and collaborative investigation capabilities, Verafin significantly reduces false positive alerts, delivers context-rich insights and streamlines the daunting BSA/AML compliance processes that financial institutions face today.