Fraud and Financial Crimes: 5 trends to watch in 2023

‘Twas the night before 2023, when all through the digiverse,
Fraudsters were stirring, planning their next curse.

Digital programs are launched, we think with great care.
Then chaos ensues, and we count our losses in despair.

We needn’t look too far into the rearview mirror for examples of how criminals twist chaos and disruption into lucrative opportunity. Trillions in Covid relief funds, distributed as quickly as possible – and unfortunately without the necessary risk controls – yielded untold billions in fraud.

Add to that the acceleration of digital initiatives we’ve seen since the start of the pandemic. Digitalization has created innumerable new channels for fraudsters to exploit, sending fraud losses across industries soaring. Identity theft has risen more than 100%, while pandemic-era unemployment fraud is estimated to exceed a staggering $45 billion in stolen funds in the US alone.

I could go on, but reflecting on recent disruptive events brings me to my first prediction…

Prediction 1: Fraudsters loves chaos! Disruption in 2023 spawns biggest increase yet in criminal multi-millionaires.

As we turn the calendar to 2023, the world faces a confluence of macro factors sure to sow even more chaos and disruption: Roiling geopolitical instability and financial volatility. Rising inflation and interest rates fueling increased defaults. A looming global recession coupled with an increasingly likely energy crisis. The ongoing adoption of cryptocurrencies.

As organizations race to enhance their digital engagement to attract and retain customers, increasingly sophisticated cybercriminals will find and exploit security and anti-fraud weaknesses. Unfortunately, organizations and businesses not yet prepared for the volume, variety and voracity of incoming fraud attacks will face accelerating losses. In the business of fraud, this means more newly minted criminal multi-millionaires.

Prediction 2: Building on consistent digital experience initiatives, enterprise decisioning launches a new era of differentiated customer engagement.

Delivering an enhanced digital experience is now table stakes, especially as millennials drive a larger share of the economy. FinTechs, Regtechs, and BigTechs are blurring the lines between traditional players in industries like banking, insurance and retail, while delivering hyper-personalized engagement – all embedded within your lifestyle.

In the race to acquire new customers while retaining existing ones, the ability to make decisions across the entire customer lifecycle becomes a significant differentiator – particularly for traditional organizations as they become more customer-centric. Think holistic decisions across risk, fraud, and marketing, all on a single architecture, creating an exclusive customer experience that can set an organization apart from the competition.

In 2023, increasing fraud losses and a drive towards automation will motivate centralized governance over many scattered solutions and consolidation of decisioning capabilities at onboarding and throughout the customer lifecycle.

Prediction 3: Anti-money laundering (AML) goes back to basics.

Wait, what? You can’t be serious. What about all the hype around artificial intelligence (AI) in next-gen AML? 

I'm a firm believer that a measured approach, with the right balance of skills, technology and analytic process, can yield great value from AI. Unfortunately, the upstart vendor marketplace has severely clouded perceptions in their selfish pursuit of higher valuations. Frankly, it’s no simple feat to navigate the tumultuous waters of data acquisition and lineage, analytic maturity, model risk management, and regulatory expectations.

In 2023, I predict we’ll see a real back-to-basics approach to AML in financial institutions. Despite the proven tangible benefits of machine learning-based detection achieved by a select few, many institutions will take a more conservative approach to suspicious activity monitoring based on internal model risk management pushback and ambiguous regulatory guidance. Firms will continue to make tactical improvements on top of traditional practices as they shift focus to the marriage of fraud and AML, which is top of mind for regulators worldwide.

Prediction 4: Escalating government sanctions give rise to AI-driven sanctions screening modernization.

Perhaps this is more of a certainty than a prediction. But how can we consider the year ahead without discussing how substantially increasing government sanctions will impact the technology market?

Challenges in sanctions screening are numerous, including the dynamic nature of sanctions lists, imperfect data, less friction in payments, and the onslaught of new cryptocurrencies. AI, embedded inadvanced screening technologies, is helping improve detection relevance by extending matching to more data points, holistically scoring for risk, and providing full transparency through detailed metrics that can drive ongoing improvements.

Further, deeper integration across monitoring technologies is supporting a more holistic, real-time view of AML risk. The end result: Greater agility in responding to ever-evolving threats, changing lists and regulatory guidance.

Prediction 5: Scam liability shifts force rapid claim response in the fraud kill-chain.

Around the world, the industry is seeing payment liability for scams shift. Increasingly, regulators are making banks responsible for reimbursing customers for fraudulent transactions, even if the customer fell for the scam. As a result, I foresee that banks will concentrate on the claims process to ensure rapid response.

Like a cyber kill-chain that identifies the points where attackers can be intercepted and stopped, fraud teams will focus on the fraud kill-chain to stop the movement of funds through mule accounts across financial institutions – chasing that glimmer of hope that they can move faster than the exfiltration of funds and recover a percentage of their new-found liability. Developing stronger safeguards, banks will also enhance their onboarding defenses with the aim of preventing mule accounts from creating a railway of cash outflows within their institutions.
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There’s no doubt that we anti-fraud professionals are in for an epic battle in 2023. While our charge feels at times overwhelming, I am heartened by the legions of us who fight side-by-side in this ever-changing and ceaseless war.

Whether you spend your days wrangling data to detect and prevent, toiling on the investigative frontlines, or helping victims recover, take pride in your broader sense of purpose and the difference you make. With fraud losses on a staggering upward trajectory, our contributions matter now more than ever.