Evolving Risk: The Ever-Changing Nature of EU Financial Crime Gets a Boost From AI Banks and anti-financial crime software solutions are working to prevent a new generation of criminals using deep fakes and impersonating individuals using AI tools.

Financial crime has not been immune to the transformations brought about by generative AI, and financial institutions are now having to face unprecedented challenges in preventing criminals from leveraging the tech for more dangerous and complex system abuses.

But that is not the only new front in financial crime prevention. A provisional agreement by the European Council and Parliament has been laid out for a new European authority named AMLA, which aims to safeguard the EU's financial system and citizens against money laundering and terrorist financing.

These two topics – regulation and the perils of AI – were central when we sat down to talk with Gabriella Bussien, CEO of Trapets, a Swedish regtech company aiding organizations to fulfill regulatory requirements, ensuring business success, and fighting financial crime.

Bussien explained how financial institutions must adapt to money laundering regulations and navigate the risks associated with AI to fight financial crime more effectively.

Know your customer.

Speaking about the main hurdles encountered by financial institutions in their efforts to prevent crime, Bussien said that several challenges deserve attention. Firstly, the constantly evolving regulations demand banks' unwavering vigilance to remain compliant.

Equally vital is understanding customers thoroughly, necessitating the aggregation of substantial data from internal and external sources. Centralizing this data in an automated manner becomes essential for effective customer knowledge. With a unified view across systems, utilizing this data becomes more practical.

"Furthermore, the shift towards digitalization holds paramount importance. Previously, manual processing hindered the effective use of vast information. Transitioning to digital platforms enables institutions to efficiently harness and employ large amounts of data for surveillance and compliance measures," added Bussien.

AI in the crosshairs.

Trapets was founded in 2000, and since then has specialized in delivering software solutions for financial crime prevention, encompassing anti-money laundering (AML), know-your-customer (KYC), and market and trade surveillance.

With a legacy spanning decades, and trusted by a diverse clientele of over 500 entities ranging from small financial institutions to regulatory bodies, Trapets has garnered acclaim as one of the leading 100 RegTech companies worldwide.

But recently the transformations have been more dramatic than in the last two decades. According to Bussien, the advancement in generative AI poses threats to identity security, primarily through the creation of deep fakes, a new challenge in financial crime. Concerns are rising regarding fraudsters manipulating the onboarding process, potentially presenting counterfeit information.

"The surge in online transactions and evolving purchasing habits creates fertile ground for scams and fraudulent activities in the business domain. This expansion introduces new challenges for financial institutions in fighting such activities, signifying many looming challenges," added the CEO of Trapets.

These transformations, as signaled by Bussien, underscore the imperative to intensify efforts in fighting financial crime. Does she think that the recent surge in AI and algorithm-based technologies needs more attention than previous transformations?

"Absolutely. Incorporating AI across various business domains, especially in resource-intensive areas, can significantly enhance efficiency, including fighting financial crime. However, accessing and interpreting vast data for monitoring can be challenging for humans. AI offers a more efficient approach, yet it inadvertently accelerates the pace of financial crime, contributing to a more complex landscape," said Bussien. "Certainly, challenger banks or newly established fintech companies may find it easier to implement such systems, having begun operations in the digital age, giving them a significant advantage."

The key disparity lies in how these entities onboard customers. Contemporary companies are inherently more digitally oriented from the outset, aligning with current trends and preferences. This differs from larger financial institutions grappling with legacy communication methods that might not fully integrate into the digital landscape, suggests the CEO of Trapets.

The new financial crime fight techniques.

Notable shifts in regulations and technology have significantly changed how financial institutions fight financial crime, but the impact has been different depending on the institution, and the changes are just starting.

For Bussien, even if in the past decade we witnessed substantial regulatory changes and technological advancements, it's crucial to offer myriad solutions for fortifying technological infrastructures against financial crimes. This surge in options contrasts starkly with the situation a decade ago, presenting customers with diverse choices, she suggested.

What is clear is that the nature of financial crime itself has evolved: Fresh challenges have arisen with the emergence of new financial products and assets, and escalating transaction volumes.

Rapid tech advances and increased criminal creativity have made fighting financial crime more challenging. Financial institutions must continually adapt, and employ new resources smarter and faster.

But beyond merely employing resources smarter and faster, financial institutions need to invest in technology that can keep pace with the advancements in generative AI. Central to this effort is the imperative to know customers thoroughly, requiring the aggregation of substantial data from both internal and external sources.

Bussien highlights the significance of centralizing this data in an automated manner to achieve a unified view across systems, enabling more practical utilization of information. The shift towards digitalization is crucial, as it allows institutions to harness and employ large amounts of data for surveillance and compliance measures.

As financial crime evolves, the emphasis shifts towards not just employing resources more efficiently but also adopting the right technologies to stay ahead of increasingly sophisticated threats.