What I learned at AML & Fincrime Tech Forum 2023

To fight financial crime, continuously explore new technologies, remain vigilant of old forms of fraud, collaborate with other teams, and raise awareness throughout the organisation.

For over 300 years, the slave trade tore more than 12 million African people from their homes and families. Forced into slavery, they worked without pay and with no rights to their humanity, heritage, culture, or family ties. Slave trading was the central business of British companies like the South Sea Company and the Royal African Company. The Bank of England was lined through its role in the wider financial system, providing banking services to companies such as these.

During this period, the Governors and directors of the Bank of England were wealthy businessmen who had invested in the Bank, rather than employees as they are today. Their fortunes were often shaped by plantation slavery and the slave trade. Many of them feature in portraits in the Bank’s collection that present them as wealthy gentlemen, far removed from the realities of slavery despite the roots of their wealth.

Excerpt from the SLAVERY & THE BANK exhibition guide, Bank of England Museum, From April 2022

The exhibition explores the links between slavery and the Bank through the private business of these Bank officials, and the Bank’s place in the wider financial system at the time. It also highlights the Bank’s ownership of two sugar plantations in the late 1700s and the enslaved people who worked there.

Now, fast forward 300 years later, and we are still discussing about slavery and human/child trafficking for labour or sexual purposes and looking for ways to detect, stop, and prevent these from happening. The AML & Fincrime Tech Forum 2023, organised by Fintech Global, provided a place to share best practices, concerns, challenges, and learnings in the fight against illicit financing.

At the end of January, on a sunny day, in London (you read correctly – no rain), over 200 professionals gathered at the America Square Conference Centre to learn what the macro forces disrupting AML and fincrime are and how can AI, Data Science, Behavioural Biometrics, and Digital Identification be incorporated in the fight against financial crime. Furthermore, there have been panels also on how 2023 compliance programmes should adapt to the increased regulatory expectations for AML & Fincrime and shared ideas on how to address AML & Financial Crime in a World of Changing Sanctions, and more.

Even if the event lasted only one day, I had the opportunity to network and meet many of the industry players and experts that are keeping our transactions safe. Plus, I also managed to visit the Bank of England’s Museum where I got to touch a gold bar and learn about the connection between Slavery and The Bank which made me think about some of the things happening now – financial institutions sometimes enabling transactions behind human/child trafficking for labour or sexual purposes.

The panellists are most concerned about two macro events that could impact their management of financial crime in the coming year: developments related to Russia and Ukraine and a potential global economic slowdown.

Increased geopolitical instability has had a significant impact on financial institutions (FIs) and their efforts to combat financial crime. One of the main challenges is staying up-to-date with constantly changing sanctions imposed by various governments. Additionally, these crises provide opportunities for criminals to engage in illegal activities such as human trafficking. The impact on supply chains also adds another layer of complexity, as FIs face difficulty in gaining visibility into the activities of their account holders and the suppliers providing services to them. As such, effective KYC and transaction monitoring practices become critical in navigating these challenges and mitigating the risk of financial crime.

A global economic slowdown could also lead to an increase in financial crime as people look for ways to generate revenue and a decrease in funding for new projects that are fighting financial crime.

Financial Institutions (FIs) need a multi-layered approach to tackle financial crime and sanctions. This includes deploying multiple systems, rather than relying on a single technology solution. Currently, these institutions typically have a limited number of vendors to protect their core business from financial crime, but this is expected to change as the industry obligation and expectations evolve. A combination of multiple layers of security is necessary, as it helps to eliminate potential criminals at early stages and stops them from getting onboard. However, some may still get through and need to be identified and reported.

The use of AI in combating financial crime has great potential. One area where this potential can be realised is in graph analytics. This involves using graph technology to monitor customer connections with external parties to detect financial crime. Graph analytics allows for more efficient and effective detection of financial crime by integrating AI and machine learning. To ensure success, it is important to consider all aspects of the technology, including detection, investigation, and upskilling end-users. This will help to increase user trust and acceptance of the technology. A focus on machine learning centres of excellence and collaboration between data scientists, data engineers, and senior management is also important for success in this area.

Still, investing in AI data science and other tools to fight financial crime is not without challenges. One of the biggest challenges is explaining the output of AI-based solutions to non-technical commercial crime officers who need to use it to identify fraudulent activities. Another challenge is validating models implemented in a way that aligns with agile development, ensuring that the models are fit for purpose and that changes made to input data or algorithm logic do not negatively impact results. Harmonisation of data is also a crucial aspect that needs attention, particularly in terms of data sharing, data literacy, and standardising the ingestion of data.

Regarding whom should be responsible for the outcomes of the tools and systems when it comes to the use of AI, it is unlikely for organisations to be held entirely responsible as there is always a human factor involved. Automated solutions still need to be reviewed by humans to assess their accuracy and relevance. Accountability can start in the boardroom by ensuring that there is an officer responsible for the explainability of every model and having clear executive responsibilities for the use of AI.

Despite the increasing use of AI, accountability still lies with human beings within the organisation and will continue to do so in the future. The role of data owners, stewards, and money order reporting officers may change in the coming years and the question remains whether regulators will empower banks to strengthen these roles.

As you may noticed many people within your LinkedIn network are either praising or fearing the new kid on the block – ChatGPT. For Martin Rehak, CEO & Founder, Resistant AI, ChatGPT is the most exciting new technology he has seen in the last three months.

The use of ChatGPT can both pose threats and opportunities in the financial industry. The technology has empowered non-native English speakers and individuals with limited coding skills to develop in areas that were not accessible to them. It offers opportunities for more effective, cost-efficient, scalable, and transparent financial planning. However, it also helps cyber-criminals. ChatGPT has the potential to enable cyber-criminals to carry out fraud at scale by creating fake documentation, fake profiles, and fake phishing messages.

The retention of personal information by ChatGPT can also pose a threat if not properly managed, as it can lead to a huge amount of data being stored and used for malicious purposes. But with the right solutions in place, it's possible to detect what is generated by a human and what is not, and to raise red flags if necessary. The key is to strike a balance between the benefits and the risks, and to use ChatGPT responsibly.

Financial institutions process an average of 20 to 40 billion transactions every day, and this number is growing by 6% annually. Half of these transactions, or 24% of all transactions, take more than 24 hours to process.

Technology is seen to increase efficiencies and make processes faster, more effective, and better. Still, it is important to have good and clean data for technology to be effective. Companies need to have processes in place and ensure that they know what they are looking for and what needs to be in place. Having good data and clean data, as well as clear escalation processes, is crucial for technology to be effective. This includes having alerts at different levels and escalation processes in place, as well as proper training for those who will be using the technology. A lack of proper training can result in costly remediation exercises, as was seen in a case where a sanctions expert was not properly trained and led to a downfall and a review of past transactions. It is important to ensure that technology is aligned with the company's risk appetite and overall strategy.

The fight against financial crime is never-ending, but it is not impossible to win. The key is to stay ahead of the curve by continuously exploring new technologies, remaining open to old forms of crime, and raising awareness throughout the organisation. The fight against financial crime should never stop, giving up means giving into a lawless world. A company must have a clear goal and the resources to solve problems in the field.

Continuously raising awareness and speaking with customers is also critical in the fight against financial crime.

About Mirela Ciobanu

Mirela Ciobanu is a Lead Editor of the Banking and Fintech domain at The Paypers. She is actively involved in drafting industry reports, carrying out interviews, and writing about the digital assets industry, the regtech space, digital identity, fraud prevention, and payment innovation. Mirela is passionate about finding the latest news on crypto, blockchain, DeFi, and fincrime investigations and is an advocate of the need to keep our online data/presence protected. As a writer, she aims to always get the best obtainable version of the truth. She can be reached at mirelac@thepaypers.com or via LinkedIn.