Report unveils emerging AI challenges in financial crime

Highlighted – industry responses and consumer concerns in Australia

Report unveils emerging AI challenges in financial crime


By Roxanne Libatique

ComplyAdvantage, a leader in artificial intelligence-driven fraud and anti-money laundering risk detection, has unveiled its annual report delving into fraud, money laundering, and financial crime.

The report underscores the rising challenge of criminal deployment of AI while revealing that financial institutions are actively investing in technology to counter this growing threat. Despite these efforts, a significant portion of consumers remains uneasy about the use of AI, even when employed for protective purposes.

According to ComplyAdvantage CEO Vatsa Narasimha, AI has become a tool for both criminals and institutions. Criminals utilise it to devise new methods of defrauding customers, while institutions leverage it to outpace fraudsters and safeguard their clientele.

“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,” he said.

Key insights on AI's role in combatting fraud

ComplyAdvantage's report revealed that:

  • 66% of financial industry respondents perceive the use of AI by criminals as a growing cybersecurity threat, encompassing risks like deepfakes, sophisticated cyber hacks, and generative AI-driven malware
  • 86% of financial institutions are bolstering defences against these threats through increased investment in new technologies
  • only 53% of financial industry respondents prioritise explaining their AI usage to customers

“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 of financial institutions to demonstrate to their customers how and why AI models have taken decisions that affect them,” Narasimha said.

Despite concerns, the report indicated consumer openness to innovative approaches, with 65% expressing readiness for banks to share transactional details if it aids in identifying fraud patterns.

Payment fraud challenges

Payment fraud is an example of growing criminal sophistication highlighted in the report, which further revealed that:

  • 60% of industry executives report sustained high levels of payment fraud over the past year, with 8% noting an increase
  • 89% of consumers express anxiety about potential fraud victimisation
  • millennials (age 27-42) constitute 31% of fraud victims over the last three years

Fraud types

Common fraud types reported by consumers include:

  • credit card fraud (59%)
  • identity theft and phishing (21%)
  • employment scams (12%)
  • investment fraud (10%)

Additionally, one in five consumers admitted to engaging in behaviours categorised as “friendly fraud,” such as disputing payments after an unsatisfactory merchant response (21%), disputing payments later recognised as legitimate (12%), and claiming a debit or credit card refund despite not returning the item (9%).

“The surprisingly high level of ‘friendly fraud’ uncovered in our survey shows just how widespread and complex fighting fraud can be when consumers can – even inadvertently – commit behaviour that may raise a red flag with their bank,” said Iain Armstrong, regulatory affairs practice lead for ComplyAdvantage.

In other news, the Australian government is reviewing regulations around the use of AI to ensure it is being used in a safe and responsible manner.

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