Terrorist financing, sanctions screening, and artificial intelligence modeling will be top concerns for AML-regulated companies
LONDON and NEW YORK, Dec. 6, 2023 /PRNewswire/ — Today, ComplyAdvantage announced the four trends it believes will shape the financial crime landscape in 2024. Following conversations with regulators, industry leaders, and innovative financial institutions worldwide, the company’s team of regulatory affairs experts predict that the next 12 months will be defined by significant challenges posed by technology and international turmoil.
Rooting out terrorist financing will drive greater scrutiny of transaction flows and alternative payment mechanisms
Vatsa Narasimha, CEO of ComplyAdvantage
“As 2023 draws to a close, financial crime risk professionals are already contending with increasing geopolitical turmoil, economic volatility, and rapidly changing criminal behavior. Next year, with more than 40 national elections, a growing focus on terrorist financing, and continued technological development, these issues will come to a head. However, there is a huge opportunity to bring together disparate data and what otherwise might be weak risk signals to identify financial crime patterns that cut across these challenges. Advancements in technology, such as machine learning, allow us to use big data in this way. I expect to see lots of exciting innovations in this space through 2024,” said Vatsa Narasimha, CEO, ComplyAdvantage.
Trend #1 – Rooting out terrorist financing will drive greater scrutiny of transaction flows and alternative payment mechanisms
The war in Gaza, ongoing unrest in Nigeria, coups in West and Central Africa, and the military junta in Myanmar demonstrate that watchlists aren’t enough to cut off funding for terrorists and uprisings. More needs to be done to identify and stop the financing pipelines that are supporting violent and repressive regimes around the globe. The Financial Action Task Force (FATF) and the United Nations have identified cryptocurrencies and crowdfunding platforms as key sectors terrorists use to raise money, increasing the likelihood of regulatory oversight in the new year.
“The crowdfunding sector has created a fast and easy way for members of the public to raise money for everything from worthy causes to medical treatments and dream vacations. Unfortunately, these same platforms are also being used to channel money to some of the biggest terrorist organizations around the globe. Tech and financial services companies need to step up their efforts to accurately identify their customers and confirm where their money is really going,” said Alia Mahmud, Global Regulatory Affairs Practice Lead for ComplyAdvantage.
Trend #2 – AI will move sanctions enforcement beyond watchlist screening to identify risk signals in the sanctioned individual’s network
Sanctions are one of the best tools governments have to deter financial bad actors, but enforcement needs to move beyond watchlist screening to implement enforcement based on connected risk signals. With ongoing conflicts in the Middle East and Ukraine, policymakers will re-examine the efficacy of their sanctions programs to increase the pressure on persons and entities connected to sanctioned officials who may be enabling them to evade restrictions. By looking at risk data points collectively – identity, business associations, transaction activity – banks and other financial institutions can identify a strong risk signal of suspicious activity. Solving financial crime isn’t just a screening problem; it is a network problem, and regulators will expect companies to leverage new technologies to treat it as such.
“With unlimited time and resources, financial institutions could uncover any and all risky connections a sanctioned person has. But that’s not realistic. Artificial intelligence (AI) combined with rich data, graph analytics, and oversight has the potential to create a defense network that would give sanctions the teeth to cut off the money that funds terrorists, wars, human trafficking, and other crimes,” continued Mahmud.
Trend #3 – Discussion about AI will shift to managing bias, modeling, and transparency
The benefits AI brings to fraud and AML risk detection were such a focus in 2023 that adoption has grown significantly. As this continues through 2024, the conversation will shift to how and where these models are used, emphasizing training and transparency.
“As we head into 2024, the question is no longer if companies invest in AI, but what kinds of skills their analysts need to ensure that the models they use are effective and that they can justify decisions that they make to auditors,” said Iain Armstrong, Regulatory Affairs Practice Lead for ComplyAdvantage. “Key skillsets such as data preprocessing, model performance monitoring and optimization, and experience in automated decisioning strategies will be in demand. Staff in existing anti-financial crime roles will benefit massively from gaining a base-level understanding of machine learning and AI. Companies that invest in staff training in this area will reap the dividends.”
Trend #4 – In the fight against fraud, there will be increasing demand for technology companies to stop fraud at the source
While financial Institutions have a clear obligation to protect their customers from financial scams, including educating them about the latest fraud tactics, implementing robust fraud detection systems, and providing timely communication in the event of a scam, the burden of combating AI-powered scams should not rest solely on banks. A study by UK Finance found that 61% of all authorized pushed payment (APP) fraud was connected to Meta (owner of Facebook, WhatsApp, and Instagram). As APP continues to grow, consumers will expect tech companies to provide safeguards at the source of most scams. This is why the experts at ComplyAdvantage think that there will be increased pressure in the coming year – from consumers and regulators – for technology companies to take a greater role in policing the activities on their platforms.
“Platforms provided by big tech and telecoms companies often serve as the initial point of contact between fraudsters and victims, so those companies also have a responsibility to do everything they can to stop scams at the source,” said Armstrong. “We think there should be an increased focus on tech companies working with financial institutions to identify scams, develop more effective fraud detection tools, and implement stricter policies to prevent the spread of fraudulent content on their platforms. Any legislation around fraud and the application of AI should take this into account.”
For more information on these issues and others, visit the ComplyAdvantage blog.
About ComplyAdvantageComplyAdvantage is the financial industry’s leading source of AI-driven financial crime risk data and fraud detection technology. ComplyAdvantage’s mission is to neutralize the risk of money laundering, terrorist financing, corruption, and other financial crime. More than 1000 enterprises in 75 countries rely on ComplyAdvantage to understand the risk of who they’re doing business with through the world’s only global, real-time database of people and companies. The company identifies thousands of risk events daily from millions of structured and unstructured data points.
ComplyAdvantage has four global hubs in New York, London, Singapore, and Cluj-Napoca and is backed by Goldman Sachs, Ontario Teachers, Index Ventures, and Balderton Capital. Learn more at complyadvantage.com.
SOURCE ComplyAdvantage
