Risk of financial crime growing as criminals go digital, says BAE Systems

Risk of financial crime growing as criminals go digital, says BAE Systems | Corporate Risk & Insurance

Risk of financial crime growing as criminals go digital, says BAE Systems

Financial institutions are facing a growing threat of financial crime and fraud risk, and are fighting an unequal battle against digital fraudsters who are unrestrained by regulation.

Today, financial crime is “vast in scale, bewildering in complexity and often committed remotely by criminals who face relatively low risk of being identified and prosecuted,” says BAE Systems.

Rob Horton, head of financial crime at the firm, told Corporate Risk and Insurance that financial crime is changing in nature and becoming increasingly digital.

“The estimates of global proceeds of crime are around $2 trillion, that’s a mixture of traditional organized crime – drugs trafficking, human trafficking, child exploitation, firearms – but also, a growing element of what you might call cyber crime,” he said.

Alongside cyber crime itself, money generated from traditional crime is being laundered through the global financial system, and criminals are increasingly using digital means to do so.

As well as being able to capitalize on the pace of technological change, fraudsters are getting ahead by exploiting the presence of internal silos and divisions within financial organizations. To put it simply, criminals love silos, says BAE.

The very nature of financial institutions means that silos are often inherent, but more can be done by risk managers to encourage less separation and more communication, according to Horton.

“We’re not saying that all these teams need to suddenly wave a magic wand, merge into a single organization and start working together. We don’t think that’s the right answer. Aside from anything else, there are political realities in any institution,” he said.

“What we are saying is that in a modern financial institution, it’s not a case of building more hubs or trying to build new teams to pull things together, it’s almost a case of building more spokes between hubs. Having trusted, well-oiled means of communication between these different functions and different teams, having the ability to share information – and in some cases, sensitive information – in order to better combat the criminal threat,” he went on to say.

In doing so, financial institutions will not just prove more effective at combatting financial crime, but will end up working more efficiently overall.

By creating a collaborative mindset, financial institutions can reap large rewards for a relatively minor cost, the report says. Industry or sector-wide initiatives promise even greater benefits.

To address the silo problem, banks should look to common operating models, as well as open data sharing internally and externally, and industry-wide collaboration, it is urged.

Horton added: “By far the most important message [for risk professionals] across the bank is to focus on a specific, tangible use case, a specific risk area where there are either inefficiencies because of the siloed nature of the teams, or where there is a specific threat where multiple different teams have value to add, and to form a virtual project team around that issue.”