Compliance officers have long been among the first to flag suspicious financial activity, but increasing activity on digital payments and banking platforms has created additional responsibility on an organization’s compliance team to root out criminal behavior.
Traditionally, organizations have relied on customer-facing staff to serve as a first line of defense against various types of fraud. Tellers would receive identification for people opening accounts, merchants opening credit cards would verify income information and financial institutions would often develop long personal histories with clients and understand behavior patterns. As more of the traditional consumer finance functions are conducted online, a trend that was only accelerated by the pandemic, fewer and fewer people are conducting these activities in person.
The fact that digital consumer finance has expanded — from banking to payments to mortgages and beyond — means that compliance officers are more responsible for detecting and preventing financial fraud than ever.
Financial fraud is one of the oldest cat-and-mouse games in human behavior. Criminals are already refining schemes that take advantage of the fact that online transactions are becoming more prevalent. For example, they don’t need to present a real ID card any longer to open a bank account — often banks are requiring only a photo or scan these days. There are more channels and companies involved with sending electronic payments than ever before, creating new attack surfaces that require ever-expanding compliance teams to properly oversee.
This new reality means that financial services firms, from traditional banks to fintech payment processors to data companies working in this space need to beef up their compliance teams, raise standards and improve education to ensure teams are ready to tackle the latest types of financial fraud.
The increased short-term costs of enhancing compliance capabilities pale in comparison to the significant reputational, business and potential regulatory consequences that can flow from being associated with financial crime.
Money laundering and other types of fraudulent activity enable terrorist activity, drug cartels, transnational criminal syndicates and human trafficking. Financial institutions have recognized that the growing proportion of digital commerce has increased the level of financial crime risk and have taken steps to deal with it. Those steps should have as a priority the changed role of compliance officers and the need to equip them with the tools and skills required to meet the challenges of the ever more complicated digital age.
