Fintechs Brace for Soaring Financial Crime – Cyber, Tax Fraud, Environmental Crime Top Concerns: Report


As war continues to rage in Ukraine and inflation impacts the economy, fintechs and digital banks expect the subsequent global economic downturn “to drive a rise in financial crime – and they’re staffing up their financial crime prevention teams.”

A new survey by ComplyAdvantage, a financial crime and fraud risk detection firm, shows 100% of fintechs are “re-evaluating their approach to risk.”

This will likely lead to “de-risking” or restricting client and business relationships “to minimize the likelihood of onboarding criminals.” While the approach appears effective, “it may also make it harder for legitimate consumers and businesses to access financial products like loans.”

Proportionate risk management is “an essential compliance strategy, but de-risking occurs when firms adopt blanket policies that, in practice, push criminals into less regulated territories.”

De-risking can also “undermine the wider financial system, as it disproportionately impacts groups like humanitarian organizations and charities that rely on financial services to support vulnerable people worldwide.” The Financial Action Task Force, the global standard-setter for anti-money laundering regulations, has said de-risking “should never be an excuse for a bank to avoid implementing a risk-based approach.”

In addition to the near-universal plans among fintech compliance professionals to re-evaluate their approach to financial risk, the survey showed that:

  • nearly two thirds (65%) expect a rise in financial crime, and 56% are hiring more compliance staff
  • the war in Ukraine has transformed the compliance universe, with 59% of fintechs changing their business model.
  • 90% of fintechs and digital banks said they’d seen an increase in the use of decentralised finance platforms – such as crowdfunding – to fund extremist political groups.

Vatsa Narasimha, CEO at ComplyAdvantage, said:

“Following the pandemic’s peak, 2023 was supposed to be the year that fintechs and digital banks began to hit their stride. Instead, economic headwinds have increased, and financial crime is rising. New risks are emerging from the decentralisation of finance, and fintechs must structure their compliance programs with a more cutting-edge, dynamic, and data-driven strategy to succeed.”

Narasimha continued:

“Fintechs must also determine how to scale their compliance programs. Existing compliance models focused on hiring more employees to address the issue will not be enough, and they will not be cost-effective. Unanimous agreement exists that technology, including AI, must be a part of the solution.”

The primary offense fintech compliance teams said “is most important when screening transactions is cybercrime, cited by 39% of respondents.” Over a third (37%) of respondents reportedly “chose tax fraud, followed by environmental crime and corruption, both on 27%.”

Investment scams and credit/debit card fraud “topped fintechs’ list of fraud typologies.”

While all are likely fueled by the economic downturn, investment fraud, in particular, often runs “counter-cyclically to the economy.”

As global markets decline, the temptation “to fall for bogus schemes promising “market-beating” returns increases.”

Andrew Davies, Global Head of Regulatory Affairs at ComplyAdvantage, said:

“We anticipate that in 2023 more firms will become wise to how environmental crime intersects with other types of financial crime. For example, successful investigations into wildlife crimes invariably reveal that those crimes were facilitated by bribery and corruption, fraud, and money laundering. Increasing awareness of this intersectionality will put firms in a better position to understand, prioritise and control against risks associated with environmental crime.”

When asked to name their top geopolitical hotspot of concern, Russia was “the overwhelming choice, selected by 47% of fintechs and digital banks.”

Over half of fintechs (59%) said “the invasion of Ukraine had changed their business model, six percentage points higher than the figure for financial institutions as a whole – 42% implemented asset freezes, and 39% instituted an onboarding freeze in Russia. Just three percent said the war had not impacted their business.”

Davies adds:

“It’s clear that fintechs have not underestimated how significantly the war in Ukraine impacts their business. But they should always be prepared for further changes to the lists of Russian sanctions designations. Firms must ensure they do not take a minimalistic approach to detecting potential Russian sanctions exposure, especially since western government agencies will increasingly focus on improving private sector implementation and reducing evasion. We anticipate increased enforcement actions in 2023 will drive this message home.”

Attention is also increasingly “turning to crowdfunding platforms and how they are being used to finance extremist groups.”

When asked if they had seen a change in attempts to use decentralized finance platforms to finance extremist political groups over the last 12 months, “90% of fintechs and digital banks said they had seen an increase,”

Davies explains:

“It’s clear that many crowdfunding platforms have been caught short by the surging demand for their services. Crowdfunding, in conjunction with cryptocurrencies and social media, increases the risks of terrorist financing by allowing bad actors to utilize the reach of crowdfunding platforms and crypto asset technologies to gain support from followers and receive funds. Crowdfunding platforms should ensure they have appropriate anti-fraud and money laundering solutions. fintechs, digital banks, and other providers working with crowdfunding organisations should perform enhanced due diligence before agreeing to a partnership, or they risk being exposed to financial crime risks and the bad publicity that comes with these.”

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