Financial Crime Is Becoming More Prevalent and Financial Institutions Not Prepared to Deal with Threats: Report

Over the last 30 years, financial crime has increasingly become “a concern to governments around the world,” according to an update from Juniper Research.

Today, there is widespread recognition that “economically motivated crime poses a long-term threat to the stability and development of societies’ economies over the long run.”

The complexity and multinational nature of financial crime “make it difficult for authorities and institutions to identify, measure, and remediate it,” the team at Juniper Research noted in a report.

As a result, financial crime “remains one of the most significant systemic risks in the global economy.” The report added that the concept of financial crime “dates back to the invention of currency.” Others argue that its origins “can even be traced back to the invention of trade.”

At that time, financial crimes “included exchanges of goods and services that knowingly defrauded the other side.”

In today’s world, there are “a wide variety of financial crimes, including fraud, cybercrime, money laundering, terrorist financing, bribery, corruption, market abuse and insider dealing.”

Juniper Research also mentioned that economies, governments, businesses, and individuals can be “both perpetrators and victims of financial crime.”

There are many types of people who can “commit financial crime, such as organized criminals, terrorist groups, corrupt heads of state, business leaders, and senior executives who manipulate or misreport financial data.”

Despite government efforts to combat economic and financial crime, the problem persists and “causes incalculable harm around the world, resulting in lost revenue for governments that could have been invested in social development, as well as impacts on individuals.”

The financial sector is also “struggling to keep up with an unprecedented rise in fraud and financial crime.” It is becoming increasingly difficult “to operate in the industry without being infiltrated by criminals at all levels.”

They are creative, connected, collaborative, and ready “to take advantage of any opportunity they find inside or around business operations.”

The Juniper Research report added:

“As financial crime becomes more complex and interconnected, siloed systems and
processes become less effective in detecting and preventing them. These practices
make it difficult for financial institutions to detect, prevent, and investigate crimes.”

The report also mentioned:’

“Furthermore, the pandemic has accelerated the transition to a cashless and digital world, opening new opportunities for financial crime and fraud. In this modern complex environment, financial institutions are unprepared to deal with these threats, which have always been the greatest concern for them.”

The report further noted that regulations “such as the EU Fourth Anti-Money Laundering Directive reflect the concern of regulators over these illicit activities.”

Due to the focus on financial crime, large fines “have also been incurred by banks, as well as corporations.”

Financial crime today “uses a variety of techniques, including AI-powered phishing schemes that use complex online profiles to reach and message individuals more efficiently and deceive them into supplying personally identifiable information or clicking corrupted links.”

Additionally, fraudsters increasingly “use advanced computing and AI techniques to carry out advanced financial crimes.”

The emergence of enhanced malware is also “on the rise.” Criminals increasingly rely on AI “to determine whether a device is being operated by a person or by a machine, as cyber defenses improve at identifying and defending malware.”

Furthermore, criminal activities “based on blockchain are on the rise.”

The report added:

“As blockchain is both decentralized and anonymized, it is extremely difficult to identify the person behind the activity. Economic crime has been transformed by the development of cryptocurrencies, which make it possible to store and transmit value anonymously or pseudonymously. Taking advantage of this environment, criminals can more easily carry out illegal activities, including money laundering.”

Technology is both “a vector for crime and a tool for creating tremendous value and protecting it from financial criminals.” Since people have more access to information online, financial crime “has become more accessible.”

There is no set stereotype of financial criminals anymore, “with the situation being that anyone with Internet access can pose a threat.” In some cases, hackers simply “view hacking as a challenge with unintended consequences.”

The report added:

“As criminal behaviour continues to evolve, organisations are more exposed to fincrime risk than ever before. Thus, AI/ML solutions are increasingly being used by financial institutions to augment their existing fincrime capabilities.”

The report concluded:

“Global software spend on financial crime prevention tools will exceed $28.7 billion by 2027, increasing from $22.1 billion in 2023. This growth of 30% will be driven by cybercriminals’ strategies of targeting the ever-growing transaction volume of payments over digital channels to maximize financial gain.”

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