When it comes to fraud and financial crime, the good guys have momentum, aided by new technology and increased vigilance among banks as well as corporates. But on the flip side the numbers don’t lie. The recently released B2B Payments Survey, conducted with our partner Strategic Treasurer, shows that concern among banks about payment security has increased more rapidly than corporate concerns over the past year. It found that 70% of banks have higher or significantly higher payment security concerns compared to the prior year, compared to 52% of corporates.
The takeaway from those numbers is that companies on both sides of the financial ledger need to strengthen their defenses against fraud. Because for every advancement made by technology innovation and advanced data analytics, bad actors are right there, every step of the way. They are finding new ways to incite insider and employee fraud, and advantage themselves of identity theft. Exactly how to catch a thief in this environment was a topic at SIBOS this week, with major banks weighing in on the momentum their spending against fraud has gained as well as the areas that could be improved.
“I think we’ve come to understand the need for a holistic view and have recognized the international nature of financial crimes,” said Banco Santander Global Head of Financial Crime Compliance Carolina Garces Monterrubio. “In other words, that means that not using a narrow and domestic approach to financial crime is something that is now very clear. We've also understood these well in the context of our own global organization. And, it has helped us evolve our interaction with other peers, which in some countries is still unheard of. And so, in these engagements, we can exchange information and learn best practices.”
From my perspective, Monterrubio is spot on. Some of the best practices have been around external fraud, which is based on advanced data analytics, regulation compliance and dedicated teams within banks and corporates. Data has also been a key factor in solving insider fraud, as we encourage banks to go beyond simple log file analysis and into some of the patterns that uncover insider fraud, as well as thorough investigations internally. As Paul Jevtovic, Executive Money Laundering and Reporting Officer at National Australia Bank told the virtual SIBOS audience, gone are the days when the head of financial crimes was one lawyer stashed in a back office. Now these executives are often on operating committees and involved in public-private partnerships that truly collaborate with governments and NGOs.
But as anyone involved in the fight against fraud and financial crimes will tell you, improvement is always welcome and better ways to optimize the spend in this area will only make the collaborative effort stronger. After all, for big banks and corporates the cost could be catastrophic. Securing business payments can’t be limited to certain amounts or to certain scenarios. The industry needs to ensure that the right analytics, procedures and tools, are applied to each and every business payment. The SIBOS panelists zeroed in, once again, on collaboration, especially in identifying the bad actors that become repeat offenders.
“One bank’s success can be another bank’s misery,” said Jevtovic, “and collectively, I think, not enough is being done in the prevention of the displacement of bad actors from one institution to another. And that's a global challenge that collectively we need to do much more thinking about, and of course it raises the tension between the issue of privacy and accountability that banks have placed upon them by law and by regulation.”
Solutions to the issue raised by Jevtovic continue to gain traction. For example, Confirmation of Payee is a simple and highly effective answer for both banks and retail customers. It provides greater insight and control of who payments are made to, and helps the banks in strengthening their relationships, and mitigating fraud losses. However, the fraud strain and demand for solutions is now being felt unanimously across corporates. Because businesses often have multiple bank relationships, they want to be doing the right thing in taking more responsibility for the security of a payment holistically. Pressure is building on regulators to open up access to the service for corporates, as this becomes a mandatory service for banks.
Whilst not a silver bullet, CoP represents one of the ways good actors are gaining momentum in the fight against fraud and financial crime, which is a fight that continues every time a transaction is made.