The decision announced by the Financial Action Task Force (FATF) on recently to add South Africa to the international watch dog’s grey list was large expected. In fact, this was the sentiment expressed during a ‘Fighting Fraud and financial Crimes – the Road Ahead’ conference hosted by global analytics leader SAS late November in Sandton and with expert speakers from SAS global as well as local banking, auditing and industry.
However, the panel of experts presented a clear message that coming to terms with the grey listing presents an opportunity for the public and private sectors to place even greater impetus on strengthen anti-money laundering regulations and initiatives in the country.
In practical terms: the grey listing will subject South African companies to enhanced due diligence. This means more frequent and more invasive assessments for anti-money laundering and combatting of terrorism financing measures risks. Ultimately, it will result in higher costs for South African businesses and individuals that trade internationally and have bank and investment accounts abroad.
One of the ways local organisations can mitigate against the ongoing threat of financial crimes like money laundering and fraud is to embrace more automated solutions driven by artificial intelligence (AI). The key to this is having access to consolidated information that provides advanced technologies with the means to mine data to provide a better understanding of the risk impact, requirements of customers, and their behaviours to identify suspicious and/or criminal activity.
Much of this comes down to automation and managing data integration in the background. Anti-money laundering and anti-fraud technology centre on screening solutions that can access data and send the relevant alerts, pro-actively if possible.
However, data on its own will not be enough to get the job done. The power of collaboration and partnerships can help make South Africa safer from fraud and crime. Partnerships structure the arrangements of how best to collaborate, but it comes down to all role players working a mutual interest. Data provides the guidance and highlights the aspects where companies must improve to become more effective in fighting financial crime.
Marcin Nadolny, Head of EMEA Fraud & AML at SAS, believes that the financial cost of fraud is a significant motivator for companies to push ahead with these crime-fighting capabilities.
“Organisations are investing more in anti-money laundering and anti-fraud services. The threat landscape is constantly evolving with new kinds of fraud being identified almost daily. Digitisation has resulted in huge volumes of transactional data needing to be managed.
“Companies are looking at how to analyse this data faster and intelligently to reduce false positives. Automation and AI that enhance the analytical function become a powerful weapon against fraud and financial crimes. Using these solutions become a smarter way for companies to detect fraud,” says Nadolny.
“Of course, this is not only limited to transactional data. In the digital environment additional information like device intelligence or behavioural biometrics are becoming gold nuggets for fraud and financial crime detection processes. Companies therefore require multiple data points to better assess transactions for fraud. The key to this is data enrichment. And the best way to analyse financial transactions and additional data at scale is using technology powered by responsible AI,” says Nadolny.
Building from here, local businesses must look at financial crimes through the lens of the customer. They must consider the challenges these customers face. For example, many companies focus on digital crime prevention. Yet in South Africa, one of the biggest threats is that of being physically robbed prior to depositing cash at the branch or an ATM.
This is where the adoption of the Rapid Payments Programme (RPP), a platform that enables the widespread use of digital payments for low value but high-volume payments, can significantly help combat physical theft. RPP can also help reduce the potential of fraud happening on digital systems.
The golden thread remains understanding data in the right context. Data can provide the necessary guidance to highlight the aspects where companies need to be more effective in guarding against financial crimes. Technology is therefore critical in enabling a cross-sectoral collaboration where the entire value chain, including the customer, is better supported.
Understanding the data at hand is one of the biggest challenges. The massive amount of data coming in and disseminating that to unlock the hidden insights do introduce complexities into the process. Benefitting from data requires the development of models through business intelligence and getting a three-dimensional view of information. This is where automation is important as a significant amount of work can be done in the background without requiring human intervention.
If financial institutions can help customers transact digitally, the high instances of physical money laundering taking place can be reduced. Part of this will entail making sure individuals can more securely identify themselves online.
Christopher Ghenne, Global Head for Banking Compliance Solutions at SAS, says that data is critical to accomplish this.
“Different regions have different regulatory aspects to consider. How we cope with the changes daily in the threat environment and getting up to speed with the number of transactions taking place must be considered. Organisations must constantly evaluate their data to ensure they have the right data, and that data is ‘clean.’ This is where money-laundering behaviour can be identified by verifying customers against their transactions,” says Ghenne.
Of course, this is where automation plays a crucial role.
“By automating processes through the likes of artificial intelligence, organisations will be able to access different sources of data in a more integrated fashion without relying on manual resources. Even though a lot of innovation is happening in the market, collaboration must bind everything if companies and the countries themselves hope to get ahead of more advanced criminals.”