Why expect a spike in financial crime? It’s the economy, of course. We are on the doorstep of recession, and it’s hard to imagine a gimmick or politician who can stop it now. For those of us who specialize in AML Compliance and related Risk, economic recession
strongly predicts a substantial increase in financial crime.
Why the connection? Sharp economic downturns result in more risk-taking—and that includes risk-taking that crosses lines into financial crime. And it’s not just crime from predictable sources; economic stress in a recession results in higher risk from unexpected
and previously legitimate actors. Professionals in Governance, Risk, and Compliance need to get ready now to predict and identify financial crime from more unexpected sources.
Gearing up now to predict and identify behaviors that indicate new sources of risk will help financial institutions keep crime out of their systems.
Compliance personnel can plan now to identify rising illicit behaviors and any new entry and merge points. Given that the majority of my own work relates to Commercial Banking, I am especially concerned with new entry and merge points in the Layering and
possibly Integration levels of Money Laundering.
If history is any predictor, we likely need to focus additional attention on crimes on the periphery of the trafficking of drugs and humans. In a sharp economic downturn, we can expect these crimes and behaviors related to them to spike as more people struggle
and look for quick money. And much of this will be made worse by prolonged global strife.
Financial crime, as always, follows on from and remains deeply entangled with these and other crimes. And as always, a key to preventing financial crime keys on a realistic prediction of behaviors based on previous ‘like’ events–no clairvoyance allowed.
This is where high-tech RegTech and AML Compliance solutions can provide extraordinary support. A top RegTech solution today can operationalize both a Rule-Based System and an Analytics-Based System.
At the beginning of the last recession in 2008, AML software solutions only offered Rule-Based Systems. RegTech vendors may find all kinds of marketing flair to describe their Rule-Based Systems, but the bottom line is that Rule-Based Systems run on queries.
In the 15 years since the last recession, RegTech capabilities have leaped forward. Analytics-based predictions are now key, in my opinion. In 2010, we at AML Partners began developing a concept and process we called “Behavioral Analytics.” Simply put,
we use historical data, using a form of regression, to detect a matrix of behaviors by ‘omni-peering’ each client. This kind of historical view can predict what each client will do using a variance based on risk.
In addition to behavioral analytics, institutions can also leverage targeted screening specifically for drug- and human-trafficking matches. There are many strong sources of targeted data now, and they can be powerful tools to fight financial crime in a
more effective and precise manner.
A spike in financial crime is coming. Gearing up now to predict and identify behaviors that indicate new sources of risk will help financial institutions keep crime out of their systems. And with greatly enhanced analytics and data options compared to the
last recession, Compliance pros can get out ahead of what’s on the horizon.
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