Top financial crime-fighting trends for 2023

Iain Armstrong, Regulatory Affairs Specialist at ComplyAdvantage outlines his predictions for cybercrime, fraud, and digital identity for the year ahead and explains why criminals will pose a greater threat to financial institutions in 2023.

 

The environment in 2023 will be perfect for criminals to thrive

The pandemic accelerated digitalisation with more people buying goods and services online. Yet, there is still so much that isn’t done in the digital world. The potential is vast – and that means many more markets for cyber-criminals to tap.

Criminals have always been the first to adopt the latest technology, and their methods will become more sophisticated over the next year. Banks’ remote onboarding of customers, for example, has given them another way to game the system, and they are becoming adept at attempting ID fraud on a mass scale.

As we enter 2023, the economic environment will be tough, a time of belt-tightening for many – with knock-on impacts for criminals. They will have to become more inventive to maintain their income. One area where we could see this play out is mortgage fraud, where, with increased distressed property sales – where sellers are desperate and want a quick sale at a low price – criminals may swoop in and fraudulently secure loans. Once the purchase is complete, they’ll arrange a swift onward sale – at a higher market value – and move the proceeds offshore.

All of these ingredients – untapped markets, new technology, and an economic downturn – create the environment for new forms of criminality to thrive.

 

Deepfakes will become more pervasive – and worrying

The use of deepfake technology – where audio and video footage is manipulated with artificial intelligence so that fake footage appears to be of a = real person – is expected to be more pervasive in 2023.

The technology has worrying implications and cuts to the heart of what we believe to be true, especially as the tools become more realistic. Deepfakes have already been effectively used in disinformation campaigns, such as a Russian video depicting a deepfake of Ukraine’s president Volodymyr Zelenskyy telling his troops to surrender.

In 2023, we expect to see an increased use of synthetic media – created with artificial intelligence – to target financial institutions. One example of this is so-called ‘Frankenstein Fraud’, where deepfakes are layered with genuine information from an unsuspecting victim to build an identity profile for a completely fictitious person.

 

There will be a more pressing need for a solution that authenticates individuals

Financial institutions are continuously targeted by bad actors who are seeking to exploit their systems for financial gain; banks are constantly finding that customers who approach them to open accounts are not who they say they are.

Given this, and the rise in money laundering – which cleans the proceeds of the most heinous crimes, such as human trafficking and slavery – there will be a more pressing need to introduce solutions that effectively identify customers as being genuine, real individuals.

The solutions, however, will have to be easy to use – and widely adopted – for them to be successful. Any solution put in place has to balance the slick user experience that consumers have come to expect with the need to protect against criminal activity.

 

Europe’s digital identity scheme is promising, but there are challenges ahead

The EU Digital Identity Wallet and the eIDAS 2.0 regulation that underpins it may hold the answer to addressing the need for identifying and authenticating genuine customers. However, in 2023 there will be many challenges ahead in adopting such a scheme.

Previous efforts to introduce similar standardised identification requirements have not been a roaring success, for various reasons. Poor user experience was partly blamed for the lack of uptake, alongside a fragmented regulatory landscape where individual states adopted different interpretations of technical standards and best practices. Also, there has been a reluctance by the private sector to invest in the solutions without the certainty they will be widely adopted.

The new and improved European approach, through eIDAS 2.0, will hopefully make it easier for private entities to participate and test use cases. Effective implementation will be key, and attention will need to be paid to making it simple for users. Proposals for users to control their data and choose which specific elements they share with certain providers could get confusing. The less-technologically literate could struggle to understand the data-sharing options, which could hamper the scheme’s uptake. In 2023, the focus will need to be on ensuring there is agreement among the various countries on the standards, there is a compelling use case, and it is easy to use.

 

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