Criminals are capitalizing on the large number of new digital banking and e-payment users, and the reduced capacity of compliance functions at financial institutions.

On the back of the pandemic, the World Health Organization (WHO) has pushed for contactless transactions. McKinsey estimates cash withdrawals at ATMs to be down by more than 50% in many European countries. Consequently, digital transactions through bank & wallet transfers, as well as virtual currencies are on the rise.

Singapore’s largest bank DBS Bank recently shared that the volume of cash deposits and withdrawals have plunged 11% in the first three months of this year, compared with the same period last year. Meanwhile, the volume of cashless transactions have nearly doubled during the same period. Some 100,000 customers have transacted online for the very first time, of which 30% were above the age of 50 years.

UOB Bank saw online grocery shopping grow 44% in Q1 2020 compared to 2019, and OCBC Bank saw customer spending increase by up to 50% on food deliveries apps, online video and music streaming services such as Netflix and Spotify.

Banks and financial institutions are seeing the need to cater to this increase in digital transactions while being razor sharp in highlighting fraudulent and unlawful online transactions.

Fraud, money laundering, bribery and corruption cases have increased as criminals seek to capitalize on the pandemic while taking advantage of the reduced capacity of compliance functions at banks and FIs.

DigiconAsia discussed this critical issue with Abhishek Chatterjee, Founder & CEO of Tookitaki, an AI-powered regtech company.

We have seen a rise in online transactions as a result of the COVID-19 pandemic, as governments in the region implement social distancing measures such as city lockdowns and work-from-home mandates. What impact has this increase in online transactions and payments had on banks and other financial service providers?

Abhishek: There has been a spike in online transactions as people are spending more time at home to keep safe due to the COVID-19 pandemic. Therefore, it is not surprising that cybercriminals are leveraging off the pandemic and exploiting security gaps online.

Increased number of transactions would lead to additional workloads for compliance teams within banks who monitor each and every transaction for possible money laundering. Their systems that are designed with pre-built rules and configured thresholds are not only missing true alerts of suspicious transactions and but also generating more false alerts that require huge staff to investigate alerts and dispose them.

Lean staff at the office, as well as lack of  IT infra and new age tools, have resulted in huge backlogs. The institutions are unable to file SAR/STRs on time resulting in compliance lapses and huge fines from regulators.

For regulatory technology (regtech) companies like Tookitaki, in current times, there is also a greater need for us to work closely with banks and financial institutions. Our role is to help them detect new and emerging financial crimes and mitigate compliance risk, by the use of technology.

Banks, financial institutions and governments need to be extra vigilant about the online scam and new ways security lapses that are occurring due to COVID-19, embrace new modern tech like AI/ML to enable sustainable compliance programs that are adaptive in the times of COVID-19 and beyond.

Has there been a corresponding increase in financial crimes? What are some of these criminal activities, and how serious have they been so far, especially in South-East Asia?

Abhishek: As criminals continue to seize the moment to proliferate their activities, many regulators across the globe have realized the challenges that banks and other financial institutions will face in anti-money laundering compliance during COVID-19.

These activities include money mule scams, medical scams, cybercrimes and fake crowdfunding scams, earning undue profits, and transferring illegally earned money across borders.

In South-east Asia, we have seen that Indonesia has been most affected by online crime during the COVID-19 pandemic due to its dependency on online mechanisms. The Indonesian National Police have strengthened their online monitoring efforts to focus on tackling this issue.

In your opinion, what should regulators, banks and financial institutions in the region do to tackle this spike in financial cybercrime?

Abhishek: Regtechs are helping banks and financial institutions overcome limitations around manpower constraints due to COVID-19.

FIs need to implement next-gen tech that will reduce false positives significantly and helps regulators, data scientists to clearly understand the model, logic behind and understand the prediction made so that they conduct quality investigations.

They also need to adopt risk-based strategies by leveraging machine learning (ML) technology to focus on those products, services and customers posing a higher risk for money laundering or terrorist financing. Risk-based approaches not only reduce cost but also reduce the risk of reliance on human capital. ML-powered solutions help financial institutions build futuristic compliance programs.

Regulators are slowly moving out of the initial scepticism about AI and machine learning as they figured out these technologies have proven efficiency and effectiveness improvements. They need to encourage and promote these new technologies in order to build financial ecosystems that are resilient to advanced forms of financial cybercrimes.

Collaboration among regulators, financial service providers and enforcement bodies is an essential element in tackling financial crime. So is the use of advanced technology to counter cybercrime. What advice or best practices can you share on leveraging collaboration and technology?

Abhishek: Financial institutions are investing in technology to create a tech platform that will allow them to thrive in the new normal. While technology presents novel options such as digital onboarding of clients, there are inherent challenges such as cybersecurity threats and identity fraud.

While our future-ready solution can effectively address possible hikes in money laundering activities, we have taken proactive measures to ensure our clients are protected. These include strengthening our typology repository with COVID-19-relevant AML patterns.

The typology repository is an ever-growing library of money laundering patterns. The platform helps financial institutions share useful money laundering pattern information without compromising on the customer-sensitive PII data. It is a novel federated approach that provides accessibility to accumulated AML wisdom across organizations globally.