IBM RegTech Innovations

How AI is redefining financial crimes detection technologies

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There is a quote in the most recent Star Wars movie, “The Last Jedi” that gets me thinking about innovation; ‘We are the spark, that will light the fire”. The Star Wars movies, books, games and mythos is a masterfully woven tapestry telling the tale of a little guy triumphing over an established, organized and technologically advanced pan galactic empire. This is accomplished through the disruption of established norms and with a lot of luck. While some would argue the Empire did nothing wrong I think we can all agree that if you staunchly refuse to change how you go about business you are enticing challengers to step up.

Technological innovation is a reality that is impacting every facet of society. No area of human endeavor from retail, to transportation, to banking has not seen some form of disruptive technology replace the long-established modus operandi. Financial crime detection is primed for a similar renaissance to drag it from antiquated costly approaches to embrace a new era of cognitive intelligence and automation.

People and organizations with a focus in financial crimes have been looking for transformative approaches for the last decade. The technologies that have the potential to radicalize the approaches to solve these problems have really only begun to emerge in the last two years. The key technologies at play are artificial intelligence techniques and enterprise scaled automation that impact every layer of the financial crime detection process from data acquisition to operations.

Real world experimentation by the biggest banks in the world has begun to assess the applicability and scalability of these technologies. Some banks have already proven the value of these solutions, but maturity is necessary in order to win over the regulatory sector and prove out the power of artificial intelligence to a sector that is hesitant to embrace it due to fear of regulatory upheaval.

The banks need this machine-driven revolution to succeed in order to battle rising regulatory costs globally. The estimated global cost of compliance is $320 billion and the penalties for not meeting regulatory obligations continues to skyrocket impacting share value and the banking sectors bottom line.

Part of the issue is being able to affect change by removing cognitive biases from critical financing crime decision processes. Cognitive biases like the Anchoring Effect, Confirmation Bias, Ingroup Bias and Planning Fallacy to name a few, are key traps financial crime operational teams fall into. Analysts end up forming cognitive biases based on their individual experiences over the course of their careers and subconsciously apply them in their day-to-day activities. Only through the utilization of technology can a bank avoid these biases by taking into account the experiences of the broader enterprise and team and ensuring the right decisions are made.

Regulatory enforcement actions are on the rise. Focus on corporate entities and understanding the intricacies has become burdensome as the complexity of payments infrastructure continues to evolve and due to the burgeoning use of technology by criminal elements for illicit intent. As the regulatory and enforcement environment continues to be embattled by continued use of enforcement actions, it is becoming clear that governments will focus on individuals to be more impactful in deterrence mechanisms. As a result, the need for better and more cohesive technologies around entity resolution will become a compulsory capability to avoid punitive measures by governments cracking down on banks that do not have critical visibility on whom they are banking and ultimate beneficial owners associated with their book of business.

Returning to our analogy we can understand that artificial intelligence technology is the spark which will light a fire to build a new wave of technological disruptors across the financial crime sector. We can already look at the marketplace and see evidence of how these disruptors are challenging the established norms of detecting illicit activity in complex financial data patterns. The regulators are taking notice and have already begun to invest themselves in capturing a snapshot of the state of the art and to understand what provisions will need to be made in national legislation to allow this revolution to take hold.

Unlike the movies it took years for the empire to fall within the literature that builds out the Star Wars universe. We don’t have years to play with as the cyber-criminals of today are a smarter and more technologically savvy breed than we’ve previously encountered. In order to combat them we need to bring this innovation to the forefront of our business plans and execute against it. Only then will we be able to use the power of the machine to better our society in terms tackling the burdensome yoke of financial crime.


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