The topic I am speaking on today [Women in FinCrime Summit, March 3] namely, the ‘Impact of COVID-19 and digital transformation on financial crime risk’ hopefully is one that resonates with all of you given the experiences we’ve all had in the past 2 years.
We all know the pandemic has caused suffering at unimaginable levels across the world. Resilience has been tested across the board for everyone including individuals rich & poor, countries small & large, businesses local & multinational
Globally, everyone has had to adapt their behaviors during the pandemic and these continue to evolve in the post-pandemic era. Technology has played a key role across the board in shaping the behavior of organizations and customers.
The pandemic forced everyone to rethink their business and engagement model – Schools, healthcare, retail and I could go on – everyone has had to adapt to the new normal. It all started off with the need to innovate to serve our customers differently, but now has led to a more convenient & cost effective way of doing business.
At HSBC, I manage a large Risk Operations Utility supporting 66 countries and we have had to not only bring in fast paced change to adjusting to working from home in a matter of days, adapting processes to align with the new way of operating, building technology solutions for customers and colleagues at a short notice. We trusted our colleagues to deliver remotely for our customers and they have done a terrific job.
For example, in India we employ over 40 thousand colleagues and everyone went from working from office to remote working in a matter of days. As they say, in the face of adversity, we do things that might not be possible in normal circumstances. The financial Industry have proven that we all are far more resilient than what we thought, and in a crisis we come together to deliver at pace in innovative ways for our customers and colleagues.
Many of the changes that the Pandemic forced us to adopt is certainly going to be there for the long haul, in specific the digital transformation.
Digitization & transformation of every financial services organization has accelerated beyond belief. In a short period, Covid-19 has brought about years of change in the way companies do business. Banks have invested billions into their digital agenda. Products & tools that traditionally took multi-years to deploy were conceptualized, designed and delivered in a matter of days and weeks.
As per a survey conducted by Mckinsey, companies have accelerated digitization of internal operations by three or four years. The share of digitally enabled products has accelerated by seven years.
More digital products were launched in the last 12 months than in the last decade. These have ultimately helped customers and made their lives easier all the way from a retail client who’s now is able to seamlessly transact digitally but also for an international business that prefer to onboard a client digitally.
From a customer perspective, the channel of choice has changed to digital for many. A recent media report cited, nearly two thirds of all banking customers in US & UK are using some form of digital channels, up from less than a third. In another report, it was cited that non-users of digital channel reduced by 73%.
HSBC has continued to accelerate our technology & digital transformation. Here are some of the key efforts worth mentioning:
- We invested $6 billion in technology in 2021
- c97% of our transactions are automated
- Our use of the Cloud increased to cover 27% of technology services, giving us more processing power and speed,
- Almost half of our retail customers are now active on mobile,
- Corporate customers carried out over 9 million payments through digital channels – an increase of 58% year-on-year.
We are reengineering operations across the bank to improve customer service, increase efficiencies and reduce risk
·There is an explosion in the use of digitally initiated payments across the world. There are some staggering forecasts out there in terms of expansion of these digital channels including one that forecasted 11 billion transactions to be initiated digitally by 2023 globally.
While the industry has been busy in innovating to serve customers, criminals have also continued to fine tune their craft, and they too are using technology and finding smarter ways to exploit vulnerabilities in the digital ecosystem.
In the financial crime space, pre-pandemic we were already dealing with some challenges: and to list a few:
Criminals have been innovating at pace and continuing to find sophisticated ways to exploit new technologies & products to place & clean their dirty money
There are Inefficiencies in connecting patterns to spot crime & criminal intent
Protecting our colleagues and our customers from Cyber fraud, Phishing scams, Charity scams, Mobile app scams etc.
Ensuring data security with increased reliance on the cloud
Covid-19 exasperated all of these traditional challenges that existed prior to the pandemic & also introduced new ones. The new challenges arose partly because face to face activities ‘were disrupted and banks needed to adapt at pace with the change which included:
Colleagues adjusting to remote working at scale at a short period of time potentially less connected with one another
Internal processes being adapted for remote working
Customers being on boarded through automated channels
Customer engaging remotely using new digital channels ,
With greater digital adoption Customer behaviors have changed & the need for financial crime organizations to adapt
Banks have had to, rightly, support Government backed schemes & roll out products at pace sometimes with temporary technology solutions . For example, In the UK, the Government has been steadfast & committed in supporting the country and in particular the vulnerable through the pandemic.
One of the temporary schemes, Bounce Back Loans, was launched to help keep small businesses stay afloat through the pandemic. Media reports suggest 1.5 million loans worth 47 billion pounds were issued through the initiative through banks and fraudsters have made successful claims running into billions. Similarly the furlough scheme was exploited through fraudulent claims.
Financial institutions around the world have had to not only accelerate the Transformation journey they were already on prior to the pandemic, but also go further to keep up with this dynamic environment, meet customer needs and be a step ahead of criminals to protect ourselves and our customers.
Transformation in the Industry continues and HSBC and other and Financial Institutions are finding different ways to get ahead of criminals.
We need to be more targeted in the identification of Financial crime risk by adopting new technologies and advanced analytics, so that we may let legitimate customers get on with their lives in peace, whilst staying alert to real threats on the financial crime front. There are three elements that will underpin its success:
- Firstly, Data – industry has vast amount of data about their customers and their behaviors and banks like HSBC have started working on elements of it on the cloud for better efficiencies
- Secondly, Analytics- With the use of tools such as AI and the data available, we can identify anomalies for review. We can now move away from liner rule based approach of finding the ‘needle in haystack’ to statistical models using learning algorithms for a more targeted financial crime identification resulting in reduction of false positive alerts
- The third and most challenging element is how we cut through vast amounts of data and pass on the right information to the right people internally and externally in a timely manner. Intelligent data aggregation platforms and rapid automation is certainly helping banks to raise their game.
In addition, there is increasing collaboration amongst banks in sharing of information to help identify criminals and warn the banks of patterns.
Better tools within and across organizations will facilitate:
- Continuous monitoring of effectiveness of controls – even more frequently than before
- Working closely with regulators around the world on technology & digital initiatives which will further shape future regulatory requirements
- Increased usage of cloud computing and block chain technology to address trade-based financial crime.
- Fraud and criminal typologies will continue to evolve and have different rates of perpetration. For example, surge in mobile banking has also seen an equivalent increase in account takeover fraud. Ongoing measures by banks and regulators will make it harder for criminals to execute crime and in the instances where they are successful, our measures will react in the most optimal manner to prevent the crime from being scalable both within an organization and the industry.
Financial Institutions that deploy these solutions will have an edge over protecting themselves and their customers and more importantly build customer trust and facilitate growth in a safer environment.
To conclude, financial crime identification, with the use of advanced analytics and greater automation, powered by cloud computing is getting more targeted in identification of Financial Crime Risk and Covid-19 has certainly accelerated this transformation.
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