How AI is Changing the Financial Crime Landscape

Research Carried out by ComplyAdvantage has Identified Criminal use of Artificial Intelligence (AI) as one the most Serious Emerging Fraud Challenges

The growing use of AI in committing fraudulent activity has been laid bare by a new report examining the state of financial crime.

Research carried out by ComplyAdvantage has identified criminal use of artificial intelligence as one the most serious emerging fraud challenges, while revealing that most financial institutions are investing in the necessary technology – including AI – to combat this growing threat.

However, a majority of consumers remain uncomfortable with AI, even when it is being used to protect them.

“AI is being utilised by both criminals – who are using it to defraud customers – and institutions, who are using it to stay ahead of fraudsters and defend their customers,” comments Vatsa Narasimha, CEO at ComplyAdvantage.

“We know from our work with financial institutions around the world that AI-based technologies can significantly enhance the fight against financial crime. We see a tremendous opportunity for banks to show consumers how these new technologies and processes like explainable AI are being used to safeguard their finances.”

Vatsa Narasimha, CEO at ComplyAdvantage

Fraudsters harness power of AI

In producing its annual report, RegTech software provider ComplyAdvantage interviewed 600 banking and financial services compliance professionals and 3,000 consumers.

Many of its more notable findings were heavily focused on AI:

  • Two-thirds (66%) of financial industry professionals believe use of AI by fraudsters to enhance the scale and sophistication of cyber attacks poses a growing threat. Risks include deepfakes, sophisticated cyber hacks and the use of generative AI to create malware
  • Banks and other financial institutions are increasing their defences against these threats, with 86% revealing they are investing in new technologies
  • The vast majority (89%) of consumers express concern about fraud, but only 40% are comfortable with the prospect of banks using AI to fight financial crime
  • Just 53% of financial industry respondents said they prioritised explaining their use of AI to their customers

Narasimha continues: “Whether they use AI to identify fraud patterns, analyse networks or streamline processes, banks can take the lead on what we believe will be a key trend in 2024: explainability, namely the ability to demonstrate to their customers how and why AI models have taken decisions that affect them.

“If compliance leaders are concerned about how customers will receive this information, our survey suggests they should be optimistic. Two-thirds (65%) of consumers told us they are open to banks sharing their transactional details with other banks if it helps identify fraud patterns.”

Millennials hardest hit by payment fraud

One example of growing criminal sophistication highlighted in ComplyAdvantage’s survey is payment fraud.

With digital payments continuing to experience double-digit growth year on year, criminals are using new technologies to commit fraud on a mass scale.

Three in five (60%) industry executives say payment fraud has remained at a high level over the past 12 months, with 8% reporting an increase.

Nine out of ten (89%) consumers expressed anxiety about being a possible victim of fraud, while millennials reported being the hardest hit over the past three years (31%). 

By far the most common type of fraud to which consumers fell victim was credit card fraud (59%), followed by identity theft and phishing (21%).

“Millennials have embraced digital payments and mobile banking, which dominate how we access banking services today,” concludes Narasimha. “The scale of fraud amongst this generation demonstrates how quickly criminals exploit technology and changes in consumer behaviour.

“Every compliance executive we surveyed said they are either currently participating in an authorised push payment (APP) programme, or will be in the near future. With APP fraud continuing to rise, we expect this to become a big priority for regulators and financial institutions in 2024.”

Read the full report: The State of Financial Crime 2024


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