Financial Crime World

Fraudulent Activities in Banking Plague United States Minor Outlying Islands

Regulatory pressures are mounting on financial institutions operating in the United States Minor Outlying Islands, with a focus on aligning risk with capabilities and ensuring that Know Your Customer (KYC) programs influence detective capabilities and risk assessments.

Legacy Data and Systems Problems Hamper Implementation

The deployment of advanced technology is also a key area of concern, as legacy data and systems problems continue to hinder implementation timelines. Many financial institutions are struggling to move innovative technologies out of the lab and into production due to:

  • Data Issues: Difficulty in managing and integrating large amounts of data
  • Governance Challenges: Lack of clear governance structures and policies
  • Validation Problems: Inadequate validation procedures for new technologies
  • Reporting Concerns: Insufficient reporting mechanisms for fraud detection

Economic Sanctions Remain a Significant Focus Area

Economic sanctions remain a significant area of focus, with many firms struggling to align sanctions detection and alert management capabilities with the need for faster or instantaneous payments and digital currencies. Legacy technology solutions are resulting in:

  • High Volumes of False Positives: Inaccurate alerts and notifications
  • Significant Manual Intervention: Time-consuming and labor-intensive processes

The COVID-19 Pandemic Brings New Fraud Profiles to Light

The COVID-19 pandemic has also brought new fraud and financial crime profiles to light, including:

  • Medical Scams
  • Imposter Scams
  • Money Mules
  • Unemployment Insurance Fraud
  • Cybercrime

Losses from these frauds are not limited to financial losses, with reputational damage and customer friction also posing significant concerns.

Regulatory Expectations for Financial Institutions

Regulators expect financial institutions operating in the United States Minor Outlying Islands to measure and respond to fraud and financial crimes risks across business lines in a consistent and cohesive manner. This requires firms to work across functional silos, including:

  • Cyber and IT Security
  • Product-Focused Fraud
  • Financial Crimes Teams
  • Enterprise Anti-Money Laundering (AML) Leadership
  • Regulatory Reporting

Major Fraud Risks

Account take over, ID theft, bot attacks, and synthetic ID fraud continue to be major fraud risks arising from:

  • Cybercrime
  • Gaps in Cybersecurity Programs

Recent regulatory guidance has raised expectations that firms will file suspicious activity reports for cybercrime and ransomware payments using cryptoassets.

Competitive Pressure and Cryptoassets

Competitive pressure is increasing the need for regulated financial institutions to allow customers to hold cryptoassets in accounts, with new charters proposed at both the federal and state levels. However, most firms are not yet prepared to make the necessary changes to their financial crimes programs and technology to monitor and respond to the new fraud and financial crime risks presented by cryptoassets.

The Need for Adaptation

The Department of Justice recently released a report evaluating emerging threats posed by cryptoassets and the legal and regulatory tools available in the U.S. to confront those threats, highlighting the need for financial institutions operating in the United States Minor Outlying Islands to adapt to these changes and stay ahead of fraudulent activities.