How can RegTechs help to combat document fraud?


One of the most pressing issues with the financial industry right now is document fraud. How can RegTech’s tackle this challenge and provide more support?

In the view of Joe Lemonnier, product marketing manager at Resistant AI, The financial industry stands at a critical juncture, facing a surge in document fraud driven by rapid technological advancements, one closely tied to the industry’s swift adoption of document automation technologies.

He said, “While these innovations promise efficiency and scalability, they inadvertently open the floodgates to sophisticated document fraud tactics. In this context, RegTech firms are indispensable, but to succeed in combating this growing threat, they need to transcend traditional boundaries between customer and provider.”

According to the product marketing manager, the financial sector’s race towards digital transformation – particularly in document processing – has set the stage for elevated document fraud risks. Technologies such as IDP and LLMs, designed to streamline operations, which were never built for high-risk environments where manipulation is common, are now being exploited by fraudsters, making large-scale document fraud not just a possibility but a growing reality.

“We’ve documented the growing trend of automated serial document fraud to show that this situation demands a critical reassessment of our approach to document security and fraud prevention,” said Lemonnier.

In order to effectively combat document fraud, however, Lemonnier believes that document fraud detection solutions alone are insufficient. “A key aspect often overlooked by financial entities is the establishment of a comprehensive document compliance or risk policy. This policy must reflect the organization’s specific risk appetite, as without it, the deployment of risk-based automation workflows remains directionless. RegTechs need to play a crucial role here, not merely as solution providers but as strategic advisors helping institutions formulate and implement these vital policies,” he said.

To provide an example of how this works in action, Lemonnier highlighted Resistant AI’s collaboration with Payoneer. “Operating in an intensely competitive global market, the teams in Payoneer faced the herculean task of onboarding merchants worldwide. This undertaking involves managing an enormous volume of documents, encompassing a wide variety of languages and formats, and navigating diverse regulatory and risk environments.”

In his view, their partnership was crucial in addressing such challenges, not just in enhancing their ability to validate documents efficiently, despite complexities arising from the diversity of volume of documents, but also in establishing a clear framework for defining their document risk appetite and developing strategies that match it. The advanced solutions provided by Resistant AI enabled Payoneer to maintain swift onboarding times and cost efficiency, while ensuring robust fraud prevention measures.

He concluded, “This kind of outcome requires a shift in how financial institutions perceive RegTechs—and how Regtechs perceive themselves. They can no longer be content in playing the role of vendor, selling technology and letting their customers hope for the best.

“Instead, they must be considered part of the team—specialists onboarded to help the institutions in their journey towards fraud prevention. And similarly, financial institutions should expect and demand more from Regtechs if they are going to get the most out of the incredible tech that is now available to them.”

The importance of technology 

Emil Kongelys, chief technology officer of Muinmos, believes that technology will play a key role in this fight against document fraud.

He exclaimed, “In today’s world of AI, we are now seeing perfect deep fakes of documents, not only in static files but also in live video streams, where even during a live video call, it would not be detected.

“RegTechs work with cutting edge technologies able to detect such type of fraud, focusing on points of interest that may not even be visible to the human eye. One could say things went half circle – if before documents were too poor quality for machines to verify, but the human eye could; now forged documents have become too sophisticated for the human eye, and only machines can verify them!”

To Kongelys, this makes the use of technological solutions even more important these days than before.

Chor Teh, financial crime compliance industry practice lead at Moody’s Analytics, also commented, “Document fraud or forgery is one of the most persistent forms of fraud, ranging from fake passports to false legal documentation, but these capabilities have evolved with the advent of generative AI. Those without the correct expertise can be easily fooled by seemingly convincing documents generated by a language model.

“At this point in time, there is no sufficient technology that can determine when a document has been generated by AI or not, so compliance teams and RegTech’s must employ other methods. Automating compliance workflows and risk screening enables compliance teams to make the best informed decisions.

“If an entity onboarding to a business exhibits potentially risky activity, access to real time data may prompt compliance teams to examine potentially fraudulent documents, helping to prevent fraud from taking place.”

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