2024 Financial Crime Trends to Watch
Reducing the cost of compliance
Operational efficiency and effectiveness will be a key focus for financial services and all regulated firms in 2024 as the dual burdens of a worsening economic landscape and ever-growing transaction volumes continue to put pressure on operations. With the annual cost of compliance being calculated at around £22,000 per day for an average UK financial institution, many firms have been highly focussed for some time on improving efficiency.
Expect 2024 to see a continued investment in false positive reduction, digital transformation and migration to cloud, as well as integrating the use of AI into analysis and vendor consolidation, along with greater adoption of risk orchestration technologies to reduce waste.
True Cost of Compliance 2023
Collaboration becomes the new normal
Meanwhile, the new Economic Crime Plan, setting the strategy to 2026, is prompting heavy government investment in technology and fraud and AML experts to populate newly-created public sector agencies tasked with tackling fraud and money laundering. The Plan sets out a framework for law enforcement agencies to work more freely alongside private sector, trade associations and big tech, establishing easier exchange of expertise, data and technology – a ‘never before seen’ game-changing step forward.
Expect 2024 to reveal new and exciting progress in the evolution of public-private sector relationships, joining forces to prioritise communication and data sharing for the ultimate benefit of all, and better guidance on effective prevention measures. The hope is that any change in governing party later in the year won’t hamper what is otherwise a year of exciting positive progress in the struggle against economic crime.
Perpetual KYC is cleared to land – but will it?
It’s been talked about as ‘coming soon’ amongst industry practitioners for years and is a topic that can cause lengthy debates, so is 2024 the year we see perpetual KYC becoming more widespread, or are we facing another false dawn? Everyone seems generally supportive of a system that continuously monitors for risks, but as the market has learned the hard way, putting it into practice takes a lot of time, investment and dedication. And against the backdrop of other regulatory focus and drivers, as well as scarce resources means it’s difficult for firms to justify dedicating resource to make PKYC work right now. Geo-political events continue to complicate issues too.
The wholly unpredictable nature of sanctions screening since 2022, for one example, makes perpetual screening all the more challenging. As the FCA rightly flagged last year, any firms that have not already stress-tested their screening and compliance processes against future risks, will have an increasingly hard time compared to those that have. No doubt the key difficulty around obtaining the ‘right type’ of quality data for effective screening, will continue to be an issue for many in the coming year.
Continued digitalisation of Know Your Business (KYB) processes – but not without good data!
The rapid rise of KYB shows no signs of slowing in 2024. Expect a renewed focus and increased pressure on businesses to truly understand the intricate networks of corporate ownership and control – particularly as the UK begins to feel the positive effects of Economic Crime and Corporate Transparency Act. KYB processes must continue to incorporate sophisticated technology – AI, machine learning and technology that can be leveraged for deeper analysis of hidden structures and ownership, focussing on the relationships between them. But technology can only go so far without good quality data.
The Act also promises to vastly improve the data available to the private sector on UK registered corporations, alongside much-needed sharing and collaboration of relevant information between agencies charged with the prevention of financial crime – a long overdue measure which can only net positive benefits. It may be late in 2024 before we see these things having a material impact, but it’ll certainly be worth the wait.
Richer data for richer analysis
Better data aggregation and improved analysis is being driven strongly by the market and 2024 will likely see further progress in this area. Many firms are running digital transformation programmes to combine their data sources (e.g. sharing data between different teams across AML, fraud and cybercrime) allowing them to address data gaps and optimise their infrastructure spend.
Here again, the Economic Crime and Corporate Transparency Act’s provision for greater data sharing will help everyone see collaboration through a new lens and open it up across both public and private sectors. Of course, data is just noise if you don’t have the context to interpret it effectively. We therefore expect AI and analytics to play crucial roles, especially around alert remediation and don’t share the concerns aired by some that AI will only have a negative impact. However, we can expect to see a shifting of emphasis from pure volume of data, to one which prioritises a better quality and relevance of data for screening.
Nina Kerkez is a financial crime and fraud industry expert and Senior Director, Market Planning at LexisNexis® Risk Solutions in the UK. Katarina Pranjic is a leading authority in the field of economic crime and is Head of Policy and Regulation at LexisNexis® Risk Solutions.
