New industry research from financial crime detection solutions provider RedCompass Labs reveals that banks are falling behind in the technology race to combat increasingly sophisticated financial criminals.
A survey of 300 senior payments professionals from U.S. banks highlights major challenges for the industry’s readiness to respond to rapidly evolving financial crime threats.
The study estimates that banks are, on average, 8.2 months behind criminals in adopting and using new technologies to detect and prevent financial crime.
The gap is much wider for some institutions, with a quarter of smaller banks estimating that criminals are just two to three months ahead. In contrast, some larger institutions fear the gap could be as much as 23 months.
Despite the delays, 75% of banks surveyed expressed confidence that they would eventually be able to close the gap, though experts warn that this optimism may be misplaced, given current detection rates.
This comes as banks grapple with an increase in both existing and new financial crime threats.
Trafficking-related crime tops the threat priority list, with 31% of banks focusing on cracking down on commercial brothels used to conceal exploitation.
Other top priorities include combating human trafficking (30%) and labor trafficking (30%). Large banks are placing special emphasis on labor trafficking (39%) and elderly financial abuse (39%).
Notably, “pig slaughter” scams – a relatively new form of cryptocurrency investment scam often perpetrated by human trafficking victims themselves – were ranked as a major concern for banks by 27-28% of banks, on par with drug trafficking.
The report states: “Victims reported losses to pig slaughter scams and other cryptocurrency scams in the United States last year were nearly $4 billion, more than double the previous year, according to the FBI, but the true extent of the losses is unclear.”
Internal Barriers to Agility
Additionally, banks report that quickly adapting their systems to new threats is a major challenge, with the majority (59%) saying it takes them four to six months to update their fraud models after identifying a new financial crime red flag.
When asked about barriers to more frequent model updates, banks cited internal governance (27%), complexity (26%) and change management processes (24%) as the main obstacles.
