Financial crime and digital fraud have become a complex challenge for businesses and organizations as the global technology-driven economy is caught in the crossfire of soaring malicious online activity, complicating the volatile risks businesses operate amid tumultuous economic conditions.
The pandemic helped reshape online and digital crime, in most part driven by an increase in social media users and higher levels of eCommerce purchasing. For fraudsters the conditions were perfect to engineer an environment under which they can thrive, leaving both consumers and businesses vulnerable to the impending risks.
Today, cybercrime and online fraud are more than malicious activities, instead, it has become a multi-billion dollar industry, where the victims are left paying the high price.
Figures suggest that the average data breach costs roughly $4.35 million, representing a 2.6% rise from $4.24 million in 2021.
The face of cybercrime has also undergone some change in recent years including the likes of fraud, bribery, corruption and money laundering, insider trading, anti-trust schemes, and terrorist financing.
According to a survey by PwC, nearly half (46%) of surveyed organizations reported experiencing some form of fraud, corruption, or similar financial crimes in the last 24 months.
The organized financial crime industry is more present than we have imagined, yet some suggest that although there has been an uptick in malicious activity, financial crime has remained relatively steady since 2018.
A spokesperson representing the anti-money laundering compliance infrastructure, idclear, suggests that the difficulties of financial crime risk management in the digital era require a new approach that works within regulatory parameters whilst not stifling technological innovation.
“There is a continuous need to increase due diligence and system efficiencies, and as businesses look to control their risks, we are seeing a stronger focus on delivering real-world compliance solutions.”
It’s become a daunting thought for organizations to consider the financial implications of fraudsters that can strike at any given moment. While there are barriers that can mitigate these instances, the reality is that businesses are never truly prepared for what can happen, until they find themselves caught right in the center of it all.
What’s more, the layered complexities of the financial crime industry only add more barriers to finding and establishing credible long-term solutions.
Digital Fraud Is Taking Over The Corporate World
While cybercrime has become relatively common among several forms of businesses, larger companies are at the greatest risk of digital and cyber fraud according to recent reports by PwC.
In their report, findings concluded that companies with a global annual revenue above $10 billion experienced the highest rate of financial fraud, with 52% of surveyed companies experiencing some form of cyber attack in the last 24 months.
Within this group, it was found that one in five reported financial implications of more than $50 million, while the smaller share of companies, 38% that were affected, was lower, facing a total impact of more than $1 million.
On the back of this, companies in the technology, media, and telecommunications sector have been more impacted by financial fraud due to the rise of consumer and investor support throughout the pandemic.
Banking Systems Are Becoming More Vulnerable
The post-pandemic economy has brought a slew of economic challenges in recent months, seeing red-hot inflation figures and soaring interest rates. In response to the sudden increase in the cost of living, consumers have been turning to financial institutions, largely credit lenders, as a way to help them cope with their financial commitments.
Though banks are considered a target themselves, the importance is rather on the type of anti-financial crime systems banks will be incorporating to protect consumer data and information.
Banks are not only dealing with an increased number of domestic cyber attacks but large-scale political instability has seen a percentage of cyberattacks coming from abroad as well.
Back in February this year, several government entities, including the New York Department of Financial Services and the U.S. Cybersecurity and Infrastructure Security Agency warned financial institutions and private companies of the possibility of cyber threats due to imposed sanctions against the Russian government after the invasion of Ukraine.
The response has been ongoing, but the rate at which financial crime has infiltrated banking in recent years has sent warning signs across the financial sector, leading many to update and improve their existing infrastructure.
Limited AI Securities Pose More Challenges
Perhaps now, more than ever, artificial intelligence (AI) has become a crucial part of operational issues businesses encounter. Throughout much of the pandemic, it was possible for AI technologies to replace mundane human tasks, and allowed businesses to better cope with an increase in online traffic.
While it’s possible that AI, alongside deep machine learning (DML), can help establish solutions targeting bad actors, there are still limited resources and knowledge available to see faster widespread adoption.
The inherent shortfall here is a lack of skilled and knowledgeable professionals that can develop the tools needed to counter cyber attackers. The shortage of data quality and availability, transparency and understanding, and software engineering skills are causing a bottleneck in the development workflow.
For these technologies to be more precise, it will also take substantial financial investment from both public and private parties. Though there has been some traction in recent years coming from both sides, the need for more innovative institutional players could perhaps be a sufficient solution to the problem.
Emerging Risks Require New Thinking
Though there has been a swift response from businesses and consumers to shield themselves against any bad actors through the use of anti-cybercrime protocols, emerging risks, and advanced threats will require many to think and act differently in the coming years.
Consumer interest in services such as Decentralized Finance (Defi) and the products that function alongside will see new technology emerging as the sector matures over time.
While there has been some development regarding cybersecurity, limited resources and financial support will only create an ecosystem plagued by malicious activity, leaving an air of distrust.
“There is a lot we still need to learn about Decentralized Finance and its inner workings, yet at the same time we should be looking to establish viable solutions that can tackle the increase in financial crime that has swept across multiple blockchain protocols and other Web 3.0 focused systems,” tells the representative of idclear.
Although this is all possible, and we could see the possibility of this coming to life in the near term, ongoing regulatory factors are making it harder for the decentralized ecosystem to establish itself within the greater economy.
The difficulty of controlling such an advanced and innovative sector is that cybercrime is covered by a facade that tends to change depending on the victim.
In this case, we see how financial crime, which encompasses several categories, is found across multiple sectors and has become a common threat for most businesses and organizations regardless of their size of influence.
The most incomprehensible factor at play is that although the technology to counter bad actors already exists within our economy, those developing them are experiencing a shortage of knowledge, skill, and human presence.
With the right set of tools, alongside human and financial investment, we could develop leading resources accessible to the greater economy, protecting not only our businesses but also consumers through comprehensive and cost-effective models.