Financial Crime Management a Key Focus for Senior FI Management in 2011

Norkom Technologies has released the findings of its annual survey on the global financial crime and compliance marketplace, which confirm that financial crime management is firmly back on the senior management agenda. The survey, which was conducted among 162 senior financial crime and compliance executives from global top tier financial institutions, illustrates that financial organisations are in catch-up mode as they attempt to bridge the gap between the financial crime fighting budget cuts that dominated last year’s results and the ceaselessly innovating criminal element.

In fact, the results of the survey indicate that the rate of increase of fraud attacks is slowing but attacks are yielding much higher gains for the fraudsters’ efforts. The percentage of respondents whose organisation experienced an increase in the level of fraud attacks over the last year fell from 71% (in 2009) to 64%, but 95% of these reported an increase in financial losses arising from these attacks. Additionally, over a quarter of respondents (26%) saw their losses grow by more than one-fifth over the period.

David Dixon, Norkom’s managing director of global solutions, said: “The results of this year’s survey confirm one thing for us – that the world has become a far more dangerous place for financial institutions. However, the good news is that financial institutions are beginning to enhance their defences against organised crime and terrorism once again through the increase of crime fighting budgets”. Forty-seven percent of respondents said they expect their fraud budgets to increase over the next 12 months compared to just 21% reported in 2009, while 38% expect their anti-money laundering budgets to increase compared to 19% last year.

The findings of the survey indicate that anti-money laundering (AML), internal fraud and payment fraud top the list of concerns for senior management in leading financial institutions. Seventy-six percent of respondents indicated that the area of AML and compliance remains front-of-mind for the senior management.

“With AML headlining the financial crime agenda once again, we anticipate a second phase of AML purchasing to help financial institutions to comply with the expected increase in regulatory oversight, indicated by 65% of respondents to the survey, and an enhanced focus on sanctions enforcement, which is anticipated by two in five financial institutions,” added Dixon. “In fact, we’ve already seen unprecedented fines being levied against global financial services giants in very recent times for non-compliance, as they grapple to deal with the growing threat of criminal and terrorist financing.”

Seventy-one percent of respondents confirmed the resurgence of internal fraud as the top fraud area of concern for senior management. According to Dixon, the internal fraud finding is in line with recent industry analyst commentary that suggests that internal fraud is becoming more and more prevalent and generally spikes during times of financial hardship. However, he warned that far more nefarious is the growing risk of employee collusion, where an employee is ‘hired’ by a criminal/terrorist gang to steal information that will facilitate future frauds. Sixty-nine percent of financial institutions reported that payments fraud would make the senior management’s agenda this year and Dixon predicted that this area may become the fraud flavour of choice, particularly when mobile banking becomes more mainstream.

“Fraudsters are researching which financial institutions pose the path of least resistance, pinpointing where their vulnerabilities lie and are flagrantly exploiting these, before moving onto the next unsuspecting target,” he explained.

In advising financial institutions as to how they can fight against such a precisely targeted entity, Dixon advocates for a multi-stranded approach to dealing with this threat. He points to the strong correlation that exists between keeping senior management informed of financial crime issues and the reinstatement of budgets. In last year’s survey, fraud was uppermost on senior management’s agenda while this year it is expected to receive a higher increase than AML. To keep management truly abreast of the risks facing their organisation, financial crime teams needs to have a co-ordinated, integrated view of the all the threats they face. To achieve this, many financial institutions are turning towards the consolidation of information from various financial crime systems to create a holistic, 360° view of the risks facing the organisation.

According to Dixon: “The results indicate that in two years’ time, we expect 81% of institutions to have in place a common case and workflow management solution, 72% to have implemented a consolidating solution to provide a more integrated view of the risks facing their firm, with 83% of these achieving full consolidation for fraud and 100% for AML. Over the coming years, we expect to see more integrated reporting that interweaves the worlds of information security and corporate security incidents into the overall financial crime fabric in an effort to create a complete end-to-end scenario of the financial crime and risk facing the organisations.”


Related reading

New consumer banking head for Citi Asia Pacific