Banks can step up their fight against financial crimes by using artificial intelligence, says Sujata Dasgupta  of Tata Consultancy Services 

Technology has changed our society, and banks and other financial institutions have digitalized their operations at a rapid pace as well. However, the financial crime compliance units of these institutions still rely mainly on heavy manual processes. 

The banking compliance units’ key reason for their cautious approach in the utilisation of AI and automation has been uncertainty about technology. Do regulators approve machine-based decision-making, and is machine learning logic fair in identifying suspicious activities? 

However, there is a clear need for utilising technology in financial crime compliance. During the last number of years, Ireland has witnessed a rise in financial crime, with illegal proceeds making their way into the financial system, often from international sources.

Last month, data from Banking and Payments Federation Ireland showed that over €12m was transferred illegally through so-called ‘money mule’ accounts in the first six months of the year.

When compared to the same period last year, the quantity of bank accounts linked to the criminal practice in Ireland almost doubled to 3,000 between January and June 2022.

In Association with

BPFI data also highlights that debit and credit card fraud (including ATM) hit €14.5m, up 18.5%, the highest levels since 2017.

As a result, banks have had to increase their number of experts in compliance operations in recent years and have also started technical transformation projects.

Financial crime compliance functions are responsible, for example, for Know Your Customer (KYC) processes as well as monitoring account transactions and customer behaviour for money laundering, terrorist financing or bribery.

Due to the current systems and processes of the financial institutions, these tasks involve heavy manual routine measures that take up a significant portion of the staff’s working time. 

Regulatory technology could be used to make handling these routine tasks more efficient. Machine learning and algorithms could be responsible for tasks such as data collation and processing, as well as other tasks early in the process.

This would free up analysts' time for investigations as well as tasks that require data driven judgement and decision-making. 

At the European Union level, there have also been recent developments that encourage the introduction of artificial intelligence based RegTech.

In April 2021, the European Commission published its proposal for a new AI regulation, which was the first step in creating the world's first legislative framework for artificial intelligence.

In the future, artificial intelligence solutions will be classified as solutions of minimal, limited, high or unacceptable risk. These types of guidelines based on regulation will support increased AI usage even in compliance functions. 

Several banks across Europe have already started adopting AI powered solutions in fighting financial crime, while others are yet to explore advanced technology in this space.

A strong defence requires a combination of people, process, and platforms. Processing huge volumes of data to discover sophisticated criminal networks and illicit money trails in financial institutions must necessarily utilise AI. 

According to the latest report on public trust in banking from the Irish Banking Culture Board published in July, trust in the banking sector in Ireland remains at an extremely low level.

There is an opportunity for the banking sector to win back public trust, but in order to do so it must keep up with the development of technology.

• Sujata Dasgupta is Global Head, Financial Crime Compliance Advisory, at Tata Consultancy Services