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As part of our annual Payments Compliance Outlook report this year, which reveals the need for firms to find a balance between growth and compliance, we interviewed a selection of professionals in the industry for the inside scoop. Here, we speak with Hardeep Rai, product director, and Karin Yuklea, product strategy, Feedzai, to understand more about AML and fraud challenges.          ‍

What are the current trends that you see for fraud and payments?

Rai: Scams (authorised push payment fraud) continue to be the dominant issue; however, we are seeing some positive news in the fight to tackle this kind of fraud. In the UK, the regulator is taking significant steps to ensure that control mechanisms are in place and consumers get the protection they need.

Due to the rise of scams, banks have invested a lot in terms of people and technology, as well as more education for consumers. This is certainly helping to stabilise the scam losses in the UK.

Yet, if you look at that broader issue, across the wider world, it is a different story. The UK has had success, but everyone else is still wrestling with the problem.

Elsewhere, regulation also has not caught up, but we are starting to see this happen now. In Singapore, regulators are discussing how you reimburse, and Australia's plans are imminent as well. ‍

How bad is payment fraud in the UK compared with other jurisdictions? What exacerbates fraud in your opinion?‍

Rai: The first thing that I would point out is that the UK is very good at reporting on fraud. There is really good, rigorous reporting, and this is not consistent elsewhere. Therefore, the UK can sometimes get more attention, due to the availability of the data, but that does not necessarily mean the problem is greater than in other countries.

The numbers are big, of course. Billions and billions are being lost, but it is hard to say whether it is better anywhere else. You cannot compare with France or Germany, for example, as there is no consistent data set to do such analysis.

From speaking with customers on the ground, you can tell that fraud is becoming a very big issue and a topic of discussion in the US. This is partly due to the increased adoption of real-time payments, which fuels a higher level of fraud, as fraudsters can move their ill-gotten gains faster.

What are the challenges that firms face with keeping up with the evolving AML regulatory landscape?

Yuklea: Firstly, dealing with this area is not getting any easier. In addition to ever-expanding regulations and regulatory focus, financial institutions (FIs) and payment processors are dealing with ongoing rapid changes to the financial and technology ecosystem itself. 

Regulators and FIs are struggling to keep up with this rapidly changing environment and adapt their AML compliance approach quickly, while criminals are often ahead of the game in exploiting vulnerabilities in new financial products and services and leveraging advanced technology.    

Many FIs are also hampered by outdated and stagnant AML technology solutions that were designed decades ago, and are unsuited for the current environment. It is always a game of catch-up, and FIs cannot keep using very old technology as it will, and has, become very ineffective. 

How are firms changing their approach to money laundering? How do you help them?

Yuklea: One of the biggest changes that is happening in financial services is the shift to digital banking across the industry. This has introduced many challenges but also opportunities, as digital banking can be a rich source of valuable data about customers and their behaviour. It also offers the ability to access this data and interact with the client in real time while they are logged into an online portal. 

Today, this technology is under-utilised in AML compliance, which is mostly still based on limited back-office datasets and delayed processing. But we believe this will increasingly become a key component in an effective AML programme. 

We are working with our clients to facilitate this journey and shift to a more proactive approach to financial crime prevention through the use of more advanced and agile technology.

How do you deal with multi-country compliance? 

Yuklea: Core AML compliance requirements are typically very similar globally, with relatively limited variations, as the fight against financial crime is a global one and is guided by common principles (and criminals operate globally using similar techniques as well). What tends to be substantially different is the focus and level of enforcement in different jurisdictions. This often means that although the high-level AML principles are the same, their application in practice really differs by jurisdiction, which drives FIs’ technology priorities.

For example, in certain Asian and LatAm markets, there is more openness to new technology such as machine learning and AI. These regulators are more comfortable with advanced technologies and are focused on monitoring effectiveness, while they are somewhat less stringent on certain governance aspects around its use. 

In some regions like the US and UK, however, regulators are more hesitant to trust new technology and require very extensive governance processes around it. This can discourage banks from early adoption of technology innovations (due to the risks and cost associated with meeting these regulatory expectations).

Machine learning is an opportunity to enable more effective and agile financial crime prevention strategies that cannot only address current challenges, but can keep up with the rapid ongoing changes that are inherent to today’s banking environment and consumer expectations of a seamless user experience. 

A trend over the next few years has to be the adoption of supporting tools for AML prevention — not just AI but the governance framework around that.

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