Cybercrime is relentless and unlikely to stop. Highly sophisticated hackers using the most advanced technology are adapting to cloud computing and artificial intelligence (AI) to commit extremely rewarding crimes with relatively low chances of being caught. Their activity is reinforced by customer behavior that is rapidly moving from traditional to digital banking, and banks that are adding more channels, thus new access points for criminals, to keep the client experience consistent and positive.
Review of 2019
According to the UN, an estimated US$1.6 trillion is laundered globally through banks each year for criminal enterprises and terrorist activities. Compliance costs are rising, estimated to climb by 50% in the next five years. Since the global financial crisis in 2008, fines to non-compliant banks exceed US$320 billion, while only 1% of money laundering flows are intercepted.
However, the losses banks are experiencing are not only financial, but there are also indirect ones such as loss of customers and reputational damage and even expand to broader damages such as reduced consumer confidence for the sector overall. Usually, we only measure the direct and costs of a cyberattack but to estimate the true economic loss we need to count the longer term and less direct effects. As there is plenty of room for improvement, banks have already started placing cybersecurity and compliance amongst their key priorities.
According to IDC, the banking sector is one of the top three investors in cybersecurity along with discrete manufacturing and federal/central government, projected to invest more than US$30 billion combined in 2019 (IDC March 2019 report). The fight against financial crime has become increasingly demanding, complex, and at the same time, much more effective. Using machine learning, AI, advanced data analytics and the power of cloud computing, technology is providing the highest protection. It enables banks to understand the behavioral patterns of their clients and build up detailed profiles where all transactions can be measured to spot anomalies. Banks already adapting are gaining a unique competitive advantage that can differentiate their customers’ experience and build their credibility.
Preview of 2020
Artificial intelligence will continue to play an increasingly important role in the future of fraud and cybersecurity. According to data from a recent Research and Markets report, the AI in the cybersecurity market is projected to reach US$38.2 billion by 2026 from US$8.8 billion in 2019, at the highest CAGR of 23.3% (May 2019 Report). As hackers are increasingly using cutting edge technology, banks need to be ahead of the game and leverage the latest techniques themselves, it is this together with the large swathes of data they have access to that will enable them to understand their customers intimately and in-turn spot very minor deviations in ‘normal’ behavior and potential financial crime.
Add to this peer group analysis which compares customers’ behavior to that of their peers and this enhances detection further as well as reduces alerts, so less intervention. AI is not a panacea, the fight against financial crime needs to be multi-faceted, it needs a joined-up approach between ongoing KYC [know-your-customer] and transaction monitoring, it needs education, both bank, and consumer, technically it needs rules and statistical analysis but it can be said that AI used in the right way is a very useful weapon in the arsenal for fighting financial crime.
In the future, financial institutions will continue leveraging multiple advanced solutions and the cloud to quickly identify financial crimes, rather than trying to address the problem merely by adding more headcount. Human interaction is still required but will be augmented by increasing levels of AI and automation.
Using advanced in technology and investing in top-level cyber-security is mandatory for banks, not only from an economic and social perspective, but also as a compliance imperative. Regulators, fully aware of the impact of these activities, are stepping up setting rules and laws. The EU’s Fifth Anti-Money Laundering Directive, known as 5AMLD, came into force in July 2018 and subsequent national laws, to be enacted by 2020, are likely to force banks to rethink their approach to know your customer, anti-money laundering and counter-terrorism financing rules. It seems likely that this is the beginning of a wider, global trend.
Cybersecurity is a hot topic for banks of every size and in all regions. Islamic countries are experiencing digitalization and cybercrime growth at the same rate as in the rest of the world. The Middle East specifically is one of the world’s most-targeted areas of cybercrime and data loss, according to Joseph Torbey, the president of the Association of Banks in Lebanon and the chairman of the World Union of Arab Bankers (link). Investment in financial crime mitigation capabilities is a necessary step for Islamic banks to automate their cybersecurity and protect themselves and their clients.
As cyberattacks continue to rise in frequency each year, cyber-security spending will also continue to increase. Recent research by the Economist Intelligence Unit along with Temenos (link) reveals that banks are investing more than ever in cybersecurity, with 71% focusing their digital investment in this area. This kind of investment is the only way for a financial institution to gain an advantage over protecting its reputation, long-term value and avoiding costs. As fraud is no longer an acceptable cost of doing business, artificial and human intelligence must work hand in hand to get the best possible results and at the same provide a frictionless customer experience.