Banks are not the police. And yet, for many crimes, financial institutions (FIs) are often on the front lines when it comes to preventing and detecting fraud.
Faced with this enormous challenge in the face of skyrocketing fraud risks, one would assume that joining forces with other FIs would be a no-brainer, but that couldn’t be further from the truth.
In fact, Taavi Tamkivi, CEO and co-founder of Estonia-based RegTech company Salv, knows this all too well, having witnessed firsthand the challenges FIs faced when it came to sharing intelligence in his previous role as compliance lead at global FinTech giant Wise (formerly Transferwise).
Related: Banks Pilot Information-Sharing Projects to Reduce Fraud
“There’s a lack of collaboration between the financial institutions who should support each other in the fight against crime,” he told PYMNTS in an interview. “I couldn’t get into proper, operational crime fighting communication with the banks and FinTechs around me,” Tamkivi added, calling the lack of intelligence sharing in the financial sector at the time “pretty shocking.”
Also see: FIs Need Collaboration AND Technology to Win AML War
The absence of shared information while maintaining compliance with relevant legislation meant that when anti-fraud and anti-money laundering (AML) teams did flag suspicious transactions, gathering the additional third-party data needed to act was a slow and uncomfortable process, Tamkivi explained.
The platform that Salv has built is now attempting to solve that problem of inter-institution information sharing by connecting relevant parties together in a secure network known as the AML-Bridge.
Read also: 5 EU Startups Making Waves in the AML Technology Space
According to Tamkivi, this team of “crime fighters,” which includes anti-fraud and AML professionals at FIs and law enforcement agents, works as a collective unit to enable faster, more efficient communication both within and between organizations.
And because Salv’s AML-Bridge has been designed to have privacy and data protection compliance built in, the platform gives users the confidence to share intelligence in a way that is legal, transparent and auditable.
Of course, creating the framework for intelligence sharing is only half the battle. For example, the culture of apprehension around the EU’s General Data Protection Regulation (GDPR) needs to change, Tamkivi said.
But he acknowledged that GDPR is fit for purpose and leaves plenty of scope for FIs to share personal data if a crime is suspected. The challenge, however, is evolving the status quo away from a knee-jerk reaction against any effort to share sensitive information.
Battling APP Fraud
Another problem plaguing the sector is the rising threat of Authorized Push Payment (APP) fraud, triggered by the pandemic and the expansion of real-time payment schemes.
To illustrate this Tamkivi pointed to the surge in card fraud that followed the initial eCommerce boom. Back then, a “vacuum of responsibility” left the different card schemes, banks and merchants unsure of who was responsible for preventing fraud or reimbursing the victims.
Today, the same is largely true for APP fraud, he said, where up until recently there has been no legal framework for compensation.
Read more: Authorized Push Payment Fraud Reaches ‘Epidemic’ Levels in UK
For example, in the U.K. where APP fraud has skyrocketed in the last year, the burden of responsibility has typically been defined by the legally ambiguous concept of the Quincecare duty, while judges have historically opined that banks aren’t liable to pay compensation if victims authorized a fraudulent transaction themselves.
In September, however, the U.K.’s Payment Systems Regulator (PSR) proposed a new rulebook that would protect consumers against APP scam losses and reduce fraud.
Read also: UK Banks Held to Higher Standards as APP Fraud Skyrockets
Pointing to similar proposals in Norway and other European countries, Tamviki said, “We can argue that it’s not fair for the institutions to take full responsibility for their consumers. I agree, maybe it’s not fair, but at least it brings really good results … because that hits their bottom line directly.”
When they’re made liable for financial compensation claims, he added, FIs are forced to up their game in the battle against APP fraud and recover lost funds to avoid having to reimburse consumers.
Here, Salv’s AML-Bridge can not only be used to share transaction records and other critical information, but it also enables FIs to initiate a pullback request when they are alerted that a customer has fallen victim to a scam.
Moving forward, there’s no denying that the fight against money laundering has intensified due to the prevalence of instant and faster payment systems. But Tamviki is optimistic that there is still a window of opportunity in the order of tens of minutes during which money launderers typically move funds between accounts in the same country.
And because requests on the AML-Bridge “follow the money,” as long as funds don’t leave the network of connected institutions they can still be recovered, he said.
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