Week 6 - Financial Crime

The fintech sector is evolving due to advancements in artificial intelligence (AI), blockchain, and other emerging technologies. However, this progress also presents challenges as regulators strive to balance innovation with consumer protection and financial stability.

This is the last week of a 6-week series of blogs covering 6 critical areas from a fintech perspective. We conclude the series with Financial Crime.

Financial Crime

Authorised Push Payment (APP) fraud remains a big challenge. The volume of cases reported in the first half of last year was 22% higher than the year before. The PSR's new rules on mandatory reimbursement will begin in October, and firms will need to enhance fraud reimbursement processes ahead of the change. This brings new financial pressures that increase the incentive to enhance fraud detection solutions, especially by investing in data, AI, and advanced biometrics, which could play a key role in detecting fraud and reducing some of the costs, as well as keeping pace with new types of fraud such as deep fakes. 🔄

Last year, the FCA reviewed banks and payment firms on fraud risk management and found a range of common weaknesses, including the support they provide to fraud victims and how they handle complaints. This year, the FCA is likely to press firms to make sure fraud management and complaint teams are properly resourced, that they're picking up complaints in good time, and providing customers with updates throughout the process. These capabilities are even more important in the context of the Consumer Duty. 💡

There is more pressure from the regulators for information sharing between firms and the regulator, and firm to firm. In the EU, data sharing obligations are set to be strengthened in the latest AML package, and the UK, through the Economic Crime and Corporate Transparency Act, has included extra requirements around proactive data sharing. 🌐

Firms that operate across the EU face an added challenge in that local regimes can vary significantly in protecting personal information versus sharing data that helps tackle and identify financial crime. These firms will need to develop systems that can distinguish between the regimes and where they need to vary data submissions. 🔄

In the UK, there will be a continued focus on debanking and the PEP regime. And firms should carry on reviewing policies and procedures around how they deny or terminate relationships with categories of customers. 📑

Key considerations:

• Invest in fraud detection technologies that utilize data analytics, AI, and machine learning to identify and prevent fraudulent transactions. 🤖

• Implement strong customer authentication procedures and educate customers about potential scams and best practices for protecting their information. 🛡️

• Engage with regulators and law enforcement agencies to stay informed about emerging threats and contribute to collaborative solutions. 🤝

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