Failure to use technology is hindering the fight against financial crime

The study, published by Guidehouse & American Banker/Arizent has recommended that tech solutions need to be aligned with broader fraud mitigation programmes in order for organisations to start making ground on bad actors.

Ongoing vulnerability & risk assessments, adequate investments and coordination with third parties have also been identified as essential to maximize the benefits of available solutions.

Despite a market saturated with advanced technology tools, the truth is that many financial institutions are struggling to effectively deploy and integrate anti-fraud solutions into their risk mitigation frameworks.

Consequently, new, evolving, or unforeseen threats continue to pose risks to financial institutions of all sizes.

Guidehouse’s Optimizing Your Anti-Fraud Technology report, based on a survey of 128 senior executives who contribute to fraud strategy at banks, in wealth management, or for money transfer or fintech organisations, revealed an overreliance on a “set it and forget it” approach to anti-fraud technology.

With resources stretched in the pandemic era, it has been a challenge for financial institutions to continue fighting the new and innovative fraud schemes that criminals continue to employ. As a result, these companies face profit loss, erosion of customer trust and public reputations, and possible scrutiny from regulators.

A third (33%) of respondents indicated they are “only somewhat” or “not at all” effective when it comes to ongoing maintenance, operation and governance of their technology-aided fraud mitigation programs; notably, 37% of all financial institutions believe they are not adequately prepared to evaluate risks from, or respond to, evolving and new fraud threats to the enterprise.

These findings come even as 66% of all respondents identify evolving fraud patterns as their top challenge.

Ellen Zimiles, partner and head of the Financial Services segment at Guidehouse, said:

“This survey and our analysis underscores just how critical it is for public and private sector clients alike to align their technology solutions with broader risk mitigation frameworks throughout the enterprise.

Salvatore LaScala, partner and leader of Guidehouse’s Global Investigations and Compliance practice, said:

“Some organisations think fraud prevention technologies will mitigate most fraud risks, without first understanding their fraud exposure, or the resources they’ll need.

“Effective solutions deploy an integrated set of tools that can be adjusted to address the unique vulnerabilities an organisation faces at various points in time, but only when aligned properly to its specific risks.”

Evaluation, Investment, and Coordination Critical to Success

Technologies of all types—but particularly anti-fraud solutions—are viewed as a cost-efficient and sophisticated way to prevent an institution from incurring financial losses from fraud.

Nevertheless, 35% of respondents indicated they didn’t have the correct level of investment in fraud mitigation tools. Moreover, 38% of institutions profess outdated technology or organisational infrastructure as major challenges to fraud prevention—putting some institutions behind market peers who also grapple with rising fraudulent activity.

A better route forward, according to LaScala, would be for those tasked with anti-fraud activity to ensure well-developed benchmarks are in place so that the effectiveness of technology solutions can be precisely and comprehensively evaluated and optimised.

“A more holistic approach to risk management should encompass anti-fraud technology, ensuring that all tools at an organisation’s disposal will also be used in a complementary manner,” LaScala said.

To use technology effectively, organisations should understand the unique strengths and weaknesses of their internal controls. A thorough, fluid, ongoing fraud risk assessment process is essential to developing a comprehensive and effective anti-fraud strategy that can combat known and unforeseen risk.

Organizations that align technology and anti-fraud efforts will enjoy better financial results and customer satisfaction, according to the report. Fraud risk programs no longer need to be a cost centre, but rather a competitive advantage.