US banks face gap in financial crime detection, study finds

On average, banks estimate they are about eight months behind, with some of the largest institutions stating that the gap could be as wide as 23 months. Despite this lag, 75% of banks express confidence in their ability to close the gap, while 25% are more uncertain. 

The research underscores that many banks are underestimating the adaptability of criminals. Survey respondents believe that criminals need around four months to adjust after a new financial crime detection method is introduced. However, the report suggests that cybercriminals can exploit vulnerabilities within hours or even days.

Main survey findings

The study, titled ‘Financial Crime Detection: What Holds Banks Back?’, is based on responses from 300 senior payments professionals at US banks. It examines how financial institutions are addressing the ongoing financial crime challenges and highlights that only around 1% are successfully prosecuted. 

Banks are facing pressure as they try to manage resources across a growing number of financial crime types. The research found that emerging crimes such as ‘pig butchering’ scams are now a significant focus, with 27% of banks prioritising them, nearly equal to drug trafficking, which is at 28%. Other crimes, including proliferation financing (33%), drug trafficking (31%), and cybercrime (30%), remain the most challenging for banks to detect, largely due to a lack of understanding of the individuals involved. 

In response, RedCompass Labs has developed the RedFlag Accelerator Portal, a tool designed to help banks and financial institutions improve their financial crime detection capabilities. This platform provides actionable intelligence and focuses on identifying patterns in customer behaviour to flag suspicious activity more accurately while minimising false positives. 

The report also emphasizes that certain crimes, such as human trafficking, have escalated dramatically in recent years. The RedFlag Accelerator Portal seeks to improve banks’ ability to detect such crimes by offering a persona-based approach to identifying illicit transactions, potentially strengthening financial institutions' defenses against organized crime. The report reveals that banks are aware that criminals are leveraging advanced technology to carry out financial crimes, yet many believe they are only slightly better at using technology to prevent them.