The New Way Banks, FinTechs Are Fighting Financial Crime

Financial institutions’ (FIs’) efforts to meet regulatory compliance standards have become more complicated in the digital age. The acceleration of payments technology has amplified risk and the danger of an ineffectual anti-money laundering (AML) and anti-fraud strategy.

Many legacy risk strategies used by established FIs are often based on risk management models ill-suited to the complexities of modern money laundering and fraud. Critical data is siloed as AML is often considered to be a matter for compliance teams, while fraud is frequently viewed as a matter of security.

The “FRAML Payments Guide: How To Deploy A Holistic Risk Hub,” a PYMNTS and Featurespace collaboration, reveals how an integrated approach to fighting fraud and money laundering can improve risk management outcomes. The playbook provides a quick-start guide to identifying cyber-risk vulnerabilities and noncompliance risks and explores the tools to help FIs bolster their fraud prevention strategies.

A few key findings from this report include:

• New iterations of fraud attacks and money laundering schemes have emerged in tandem with new payments technologies.

As technology evolves, FIs, neobanks and FinTechs must maintain anti-fraud and AML practices while addressing issues with legacy risk monitoring and mitigation tools — many of which were created in an era long before fraudsters and money launderers used advanced technology to scale massive fraud efforts.

• Removing the silos around anti-fraud and AML operations allows risk teams to get the most out of their data and optimize compliance.

Monitoring and anti-fraud efforts synchrony are critical for a successful risk management strategy. Per the playbook, risk should be minimized as much as possible because failure to stop money-laundering activities can lead to significant legal penalties, even if good faith efforts are made to address vulnerabilities.

Financial crime has evolved in tandem with new technologies, creating its own ecosystem of fraud, stolen data and money laundering, which acts as a dark mirror to the global payments ecosystem. As criminals leverage new technologies to penetrate, weaken and in some cases overtake legacy AML and anti-fraud systems, FIs must use advanced tactics to protect their clients and their data.

• FIs are now turning to a new approach to fight fraud, using a unified fraud and anti-money laundering (FRAML) hub designed to address all relevant fraud and noncompliance risks.

A FRAML hub serves as a command center for risk management, allowing FIs to automate complex compliance and anti-fraud efforts to manage long-term risks at aggregate and granular levels.

To achieve optimal results, a FRAML risk hub would utilize cross-channel transaction data, consumer behavior insights and device ID information to provide businesses with more accurate risk scoring on a per-transaction basis. This makes FRAML compliance more effective as businesses scale while helping organizations prevent fraud attacks before impacting critical business operations.

To learn how creating and executing an effective FRAML strategy can protect profit and loss goals while guarding against noncompliance risk, download the playbook.