Why Banks and Finance Organizations Are ‘Orchestrating’ The Risk of Financial Crime and Fraud

By Eddie VaughanBanking Expert, LexisNexis® RiskNarrative™ platform

Ffinancial services organizations and banks across the globe face a difficult balancing act. On the one hand they must protect their operations and customers from the perpetual threat of financial crime and fraud, while on the other, they must reduce friction to create a seamless and straight-through experience for trusted, genuine customers. Striking this balance and minimizing factors that can compromise performance and ultimately profitability, is the driving force behind many banks’ decision to evolve from risk management to risk orchestration.

A rising and relentless battle

Numerous studies and reports about the risk of financial crime and fraud concede that despite all the efforts to date, risks continue to escalate. The UK fraud prevention service Cifas reported in July that there were more than 200,000 cases of fraudulent conduct filed to the National Fraud Database in the first six months of 2022 – a rise of 11% compared to the previous year. The report also highlighted soaring levels of identity fraud, with 136,000 cases recorded during the same period, up by a third on the previous 12 months.

Recent figures from UK Finance also paint a bleak picture, showing a total of £608.9 million was lost to fraud and scams during the first half of this year. In the midst of growing concerns that the current economic climate will leave people even more vulnerable to fraudsters and criminals, UK Finance is now running a campaign to warn people and alert them to the ever-present threat of fraud. This is a fear shared by banks. In September 2022, LexisNexis® Risk Solutions surveyed 201 UK financial organizations and found that four-in-ten (43%) believe the current cost-of-living crisis will lead to an increase in financial crime and fraud.

The impacts of rising inflation and energy bills can leave people cash-strapped and more disposed to offers on social media and online to make ‘a little extra money’. Criminals realize this and exploit it, ad nauseum. They know financial pressures and stresses lead to victims becoming less questioning and skeptical of scams, and more susceptible to criminality.

In addition to economic challenges, the LexisNexis® Risk Solutions research found that 38% of financial services organizations think that advances in digital technologies will lead to increases in the risk of financial crime and fraud over the next 12 months. Financial transactions have become increasingly remote and faceless during the past decade, delivering many positive benefits, but also inadvertently creating a breeding ground of opportunity for identity fraud. Fewer ‘in-person’ transactions and interactions can allow more opportunity for criminals to leverage stolen identities for illicit financial gain.

Together, advances in digital technologies and economic conditions feed the criminal appetite for malicious financial activities. Our research found that a third (32%) of financial services organizations believe criminals are spending more time and resources on fraud and financial crime. Multiple, potential points of vulnerability are appealing to fraudsters and criminals.

A customer-focused approach

By and large, banks are taking many innovative and pioneering steps to tackle financial crime and fraud. They are investing in developing techniques and processes to mitigate fast changing and increasingly sophisticated criminal activities. Our research shows that financial services organizations are spending hundreds of thousands of pounds on anti-fraud and financial crime software and technology this year alone, with the majority (69%) planning to increase their investments over the next 12 months.

Efforts to combat financial crime and fraud are making banks prioritize the customer element of their operations. According to our research, 35% of financial service organizations have increased verification checks for customers during the past year, while a third (33%) have focused on promoting awareness of risks and scams among customers. This is being supported by investment in staff training to create a robust, frontline defense against fraudulent activity.

Empowering and mobilizing the very customers targeted for exploitation should prove an effective weapon in the fight against criminal activity. Our research suggests that the risks of mobile and internet banking fraud, exposure to money laundering and Authorized Push Payment (APP) scams are all set to rise during the next year. The manipulation of individuals, as opposed to technology, is central to each of these crimes.

Of course, the unwelcome consequence of strengthening the frontline against financial crime and fraud is that it can negatively affect customers. When asked about the impact of crime-counter-measures on their operations, the top two responses in theresearch were that anti-fraud steps can ‘frustrate customers, which leads to negative experiences, complaints and drop offs‘and that’they can also lead to increased customer inquiries about processes‘. Financial services organizations also acknowledged issues around slower customer onboarding and this causing a drop-out during applications for new products and services. These pain points are the catalysts for leading UK banks to think about evolving from risk management strategies to risk orchestration.

The evolution of risk orchestration

Financial crime and fraud risk orchestration is an advanced form of risk management that can overcome silos and manual processes to deliver more informed insights that enable quicker and increasingly accurate assessments of risk. It provides an end-to-end solution for customer onboarding and ongoing monitoring, incorporating anti-money laundering screening, transaction monitoring and case management, all within a single platform.

Orchestration can give organizations the flexibility and choice to deploy as many vendors and data sources as needed in their screening and monitoring, without the usual logistical headaches.

Our research shows that on average, financial services providers rely on five external vendors for data sources or solutions to prevent fraud and financial crime across their customer onboarding and lifecycle – with half of firms (49%) highlighting that having multiple solutions in place helps to increase protection. Most organizations plan to scale up levels of technology and data sources and are keen to avoid this compromising customer service and satisfaction.

Similarly, organizations are concerned that, although drawing on more data sources can provide a richer and more complete profile of customers to help avoid criminal transactions, it can also negatively impact operational performance. 44% of finance organizations acknowledged that they need to better manage the levels of protection they have in place, with a third also admitting that managing multiple systems and vendors can be complex and time consuming.

Synchronizing and unifying existing systems into one, end-to-end solution can streamline processes, while enhancing levels of financial crime and fraud prevention. Orchestration platforms provide banks with the ability to automatically track customer transactional behavior over time and flag anomalies. They can also create risk-based screening tailored to their varying risk appetites.

These benefits are driving a trend of financial crime and fraud risk orchestration among banks.

The LexisNexis® Risk Solutions research found that 59% of financial services organizations are prioritizing investment in such platforms as they strive to strengthen both security and customer service. Banks want to better protect their operations and customers against criminal intent and activity, without this leading to slower, more laborious and resource-intensive transactions and interactions with customers. Risk orchestration achieves this by delivering a solution that’s rooted in both effectiveness and efficiencies.

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