A recent survey conducted by RedCompass Labs, a leader in financial crime detection solutions, has uncovered that banks are struggling to keep up in the technological race against increasingly advanced financial criminals.
The study surveyed 300 senior payments executives at U.S. banks and revealed significant challenges within the industry to stay ahead of the rapidly changing threats posed by financial crime.
According to the survey, banks estimate they are, on average, about 8.2 months behind criminals in adopting and utilizing new technologies for detecting and preventing financial crime. This time gap is even larger for certain institutions; nearly 25% of smaller banks believe that criminals are just 2-3 months ahead, whereas some larger banks estimate the gap could be as great as 23 months.
Despite this delay, 75% of the banks involved in the survey expressed confidence that they will eventually be able to bridge this gap. However, experts caution that such optimism may be unfounded given the current rates of detection.
Banks are contending with a surge of both longstanding and emerging financial crime threats.
Crimes related to human trafficking are at the forefront of these threats, with 31% of banks prioritizing the detection of commercial-front brothels that are used to mask exploitation.
Other significant areas of focus include combating people smuggling (30%) and labor trafficking (30%). Larger banks tend to pay more attention to labor trafficking (39%) and elder financial abuse (39%).
Interestingly, ‘pig butchering’ scams—an emerging type of cryptocurrency investment fraud often perpetrated by victims of human trafficking—ranked equally with drug trafficking as a major concern for 27-28% of banks.
The report highlights, “The FBI has noted that victims reported losses nearing $4 billion from pig butchering scams and various other crypto frauds in the U.S. last year, more than double that of the previous year. However, the true scope remains uncertain.”
Internal Challenges to Adaptability
Furthermore, banks have reported significant hurdles in swiftly modifying their systems to address new threats. A considerable majority (59%) stated that it takes them between four to six months to update their fraud models after identifying new red flags related to financial crime.
When asked about the obstacles preventing more frequent updates to their models, banks pointed to internal governance (27%), system complexity (26%), and change management processes (24%) as the primary challenges.
