A recent study conducted by RedCompass Labs has revealed a concerning lag in how U.S. banks are keeping pace with criminals.
According to Finextra, the research titled “Financial crime detection: What holds banks back?” surveyed 300 senior payments professionals across U.S. banks. It uncovered that banks believe they are, on average, eight months behind criminals in detecting financial crimes, with larger institutions estimating the gap could be as wide as 23 months.
Despite this significant lag, an optimistic 75% of banks believe they can bridge this gap, with 25% feeling they might catch up. However, the study highlights a critical misjudgment by banks regarding the speed at which criminals adapt, with banks underestimating that criminals can exploit vulnerabilities within days or hours of a new financial crime being detected—far quicker than the four months banks suspect.
The survey also sheds light on the resources being stretched thin across various types of financial crimes. It highlights that emerging crimes such as ‘pig butchering’ scams are now as prioritized as traditional ones like drug trafficking, with 27% of banks focusing on the former and 28% on the latter. The most challenging crimes to detect were identified as proliferation financing (33%), drug trafficking (31%), and cybercrime (30%), with a poor understanding of criminal personas contributing to these difficulties.
In response to these challenges, RedCompass Labs has introduced the RedFlag Accelerator Portal. This tool aims to revolutionize how financial crimes are detected by providing banks with actionable intelligence, red flags, and a persona-based approach to identifying suspicious activities. This method promises a reduction in false positives and a more accurate identification of illicit transactions.
Tom Hewson, CEO of RedCompass Labs, emphasized the urgent need for change, “There’s nothing organized crime wants more than for us to continue doing what we’re doing. According to a Nasdaq report, $3.1 trillion in illegal transactions were made in 2023. Yet our best estimates suggest 1% of these crimes are brought to justice. That feels like an error of focus. Not an error of ability,” he said. He further noted the paradox of banks being adept at using technology yet failing to detect 99% of financial crimes, underscoring the potential to significantly improve crime detection through better use of data and technology.
In summary, while banks are facing significant challenges in keeping pace with rapidly adapting criminals, there is hope with new technologies like the RedFlag Accelerator Portal that aim to close the gap and enhance the detection of financial crimes.
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