How data-driven approach becomes a future-proof solution against financial crimes

Various IT systems, depositories, institutions, and financial subsidiaries store huge datasets, now more than ever. Cybercriminals making the most of this opportunity to execute increasingly sophisticated cyber-attacks, which calls for adopting more stringent processes and standardized practices across the community.

The rise in financial crimes

Cybercrimes are being committed across various sectors of society. In the second quarter of 2023, cyberattacks on Indian websites increased 90% compared to the first quarter, and out of 1.1 billion attacks blocked worldwide, 947 million were blocked in India alone.

Consumers, retailers, and households are being targeted by economically motivated criminals using identity deception, investment frauds and unauthorized transactions. In addition to that, economies are also being threatened by large scale money laundering and terror-funding activities by organized groups that disguise illegitimate profits with legitimate earnings.

The spike in cybercrimes is a serious concern for governments, businesses, consumers, and financial institutions globally. In March 2023, a scam involving distribution of fake stamps worth ₹ 2.24 crore was exposed in Delhi, which affected the state revenue collection, concerned state bodies as well as the citizens.

The impact of such crimes is far-reaching, from loss of huge confidential datasets to reputational damage impacting brands and corporates. Hence, a global alignment of regulations, data, and systems is necessary to safeguard payments against cybercriminals, particularly in light of the world’s push towards a cashless economy and the resulting spike in digital payment transactions.

Critical need to address growing financial crime and cyber-security challenges

The fall out of compliance against cyber frauds and financial crime is often system non-interoperability, outdated infrastructure, an absence of standards, and the risk of data theft throughout payments. Businesses must prove the efficacy of their compliance procedures, with regulation across the world becoming increasingly stringent.

Financial institutions must raise their defenses against cyberattacks to protect the integrity of the wider financial network. They could adopt the following measures to better address these challenges and mitigate risks:

• • Access to pre-validated data – It is essential for participating intermediaries to have access to complete datasets involved in payments and trade-related messages traveling across institutions and borders. Such data pre-validation adds an extra layer of predictability helping in identifying any discrepancies at the initial stages and mitigating any potential risks of failures or frauds.

• • End-to-end tracking – Very much like the tracking number provided by couriers, with the availability of complete information of payments and messages, banks and intermediaries will be able to quickly find out where funds are and the reason for delays, if any. An inability to track transfers may lead to series of frustrating manual interventions, friction, and failures.

• • Well-structured payments data – In the era of advanced tracking mechanisms and stricter KYC requirements, payment data needs to be assessed continually with an objective to identify any errors at initial stages and ensuring that final payments are fed with the correct and most recently updated datasets.

• • Optimal use of analytics – Assembling strong analytics programs from the ground up to deliver insights can be costly and time-consuming for financial institutions. The return on investment of building the tools and capabilities in-house versus the adoption of purpose-built analytics tools that can configure according to different risk appetites and reporting requirements, must be considered before making an investment.

• • Deploying a collaborative approach – Unexpected expenses continually provide a challenge to compliance teams and have a negative influence on departmental effectiveness. Finding answers to such concerns could be challenging and establishing the right collaboration models within the banking community by using APIs and Cloud technology can assist in solving market concerns effectively.

As the world is moving towards larger digital footprints and technological advancement, vulnerabilities in technological infrastructures require an ongoing obligation for organizations to fight against an increasing number of cybercrimes. Therefore, in order to mitigate the risk of cyberattacks on the banking community, institutions must harness payment data and analytics to increase transactional transparency, use solutions that deliver extensive insights into payment data quality, establish cyber security control frameworks and allow transactions to flow and be traceable across networks.

—The author, Anirban De, is Head – Business Development- Financial Crime Compliance – Middle East Africa and India-South Asia at SWIFT, a leading provider of secure financial messaging services globally. The view expressed is personal.