COVID-19 pandemic: How banks can increase resilience against financial crime

A more agile, efficient and resilient approach to financial crime compliance can give banks the confidence to recover faster and stronger.

Around the world, governments, industries and communities have rallied to combat the devastating impacts of the COVID-19 crisis on our health, economy and way of life.

At the same time, others have seized the opportunities presented by the crisis to exploit vulnerabilities in a financial system under extreme pressure. Evidence of a rise in financial crime during the pandemic is still being gathered, but anecdotal reports suggest some forms of criminal activity, including money laundering and rogue trading, have increased.

Now: moving fast to mitigate immediate threats

Many regulators, including the US Securities and Exchange Commission and European Banking Authority (pdf), have alerted banks to the risks of financial crime during the pandemic while at the same time reiterating that they must continue to monitor and report suspicious transactions even as some supervision, reporting deadlines and due diligence have been relaxed in order to keep money moving throughout the system. Banks have a big role to play in ensuring government support and stimulus packages are delivered quickly and efficiently to those who need it but doing so while remaining vigilant to crime is not always easy.

In the midst of the pandemic, the priority for banks is to act fast to control immediate threats. Some financial institutions are accelerating their use of digital tools, particularly data analytics, to identify suspicious activity. Others, with internal resources stretched, are engaging managed services partners for additional support and their specialist talent and technology to ride out the peak.

Next: strengthening the approach to financial crime disruption   

When conditions begin to stabilize, financial institutions should consider how to build in more resilient strategies to detect and prevent financial crime in a post-pandemic world. Europol has predicted that the easing of lockdowns is likely to see levels of financial crime return to normal, but warn that the crisis will have created new opportunities for criminals. Prolonged economic hardship and the vulnerability of some segments of the community may drive a rise in illicit activity including money laundering and cyber-related fraud.

As banks consider how to protect against a potential surge in financial crime after the COVID-19 crisis, they are likely to learn lessons from their performance during its peak. On the whole, the banking sector has responded remarkably well to the disruption, maintaining business continuity and ensuring the robustness of the world’s financial systems throughout. Even so, many banks have recognized gaps in their current approach to financial crime. Actions to plug these are likely to include:

1. Accelerating digital transformation

Prior to the COVID-19 pandemic, while banks had been increasing their use of data and analytics to detect and prevent financial crime, deployment of digital was relatively conservative. Now, lockdowns have forced banks to take the customer experience almost entirely online – onboarding and servicing customers via digital platforms – with many hoping to maintain this digital customer journey in recovery. For this digital transformation to deliver genuine progress, banks must also look at what is required to digitalize KYC and transaction monitoring as part of the onboarding and ongoing servicing of customers. This will require both a major shift forward in the use of data and analytics in these domains but also a signification uptake in the adoption of next generation technologies such as computer vision, dynamic customer risk rating and biometrics.