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This article is part of our Opinions section, where we invite industry professionals to share their views on the most pressing technology questions of our time.
The global impact of economic crime is staggering. According to the Nasdaq Verafin 2024 Global Financial Crime Report, an estimated $3.1 trillion in illicit funds flowed through the global financial system in 2023.
Beyond the hit to individuals, businesses and the broader economic systems, this number reflects trillions of dollars laundered to fund crimes that have a significant impact on society at large, including an estimated $346.7 billion in human trafficking, $782.9 billion in drug trafficking activity and $11.5 billion in terrorist financing.
This manifests in a wide range of fraud incidents, from individually focused efforts such as the current surge of activity relating to authorised push payment schemes in the UK to enterprise-targeted wire fraud and social engineering attacks.
In our digital-first world, data is the most critical asset to combat these efforts. Financial institutions rely on data to extract insights, identify unusual behaviour and inform ongoing monitoring that can help stop and prevent fraudulent activity.
In this fight, the more data, the better. However, the ability to access and utilise all available data sources is anything but a straightforward endeavour. And, in many cases, regulations and guidelines put in place to help protect customers also unintentionally hamper investigators and empower criminals.
To effectively combat economic crime, financial entities need to be able to leverage data while respecting regulatory barriers, organisational silos and security boundaries.
In recent years, this is a challenge that has been answered by breakthroughs in technologies, namely advances in a category known as Privacy Enhancing Technologies (PETs). PETs are unique because they specifically protect the usage of data, securing data while it’s being used or processed, and allow insights to be gained across boundaries and silos while minimising risk.
The broader value and potential impact of PETs to unlock data value and enable data sharing and collaboration has been highlighted by many on the front lines of combating financial crime, including global regulators.
The UK’s Information Commissioner’s Office (ICO) released an in-depth PETs resource in 2023 and followed up that guidance with the recent release of a PETs Cost-Benefit Awareness Tool and checklist. Additionally, ICO staff worked with officials from the Department for Science, Innovation and Technology (DSIT) to publish a Repository of PETs Use Cases.
While each of these documents is significant, the message they send when considered collectively is even stronger: the impact of PETs is important enough that the category warrants a commitment of resources from regulatory bodies and other government stakeholders. This affirmation, in turn, is causing leading financial institutions and other industry leaders to spend more time exploring the category’s impact.
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For data to have the most substantial impact in fighting financial crime, organisations need to be able to securely utilise a wider, richer collection of datasets. Data may be sourced from various silos within the organisation, branches across jurisdictional boundaries, third parties, and/or commercial data providers. By protecting data while it’s being used, PETs make this secure and private usage possible.
To understand the difference the PET-enabled widening of the data aperture can make, here are three real-world challenges that highlight the foundational value of data in the financial sector’s fight against financial crime.
When financial organisations can utilise more data sources, they can establish patterns of behaviour that help flag possible fraudulent activity. These efforts can be advanced through the utilisation of ML/AI models. Data is even more critical in these scenarios as AI tools are data-hungry — and only as good as the data sources over which they are trained. PETs uniquely provide the ability to securely and privately train and use ML models over a wide range of sources across various silos and boundaries, which are key to unlocking the value of these AI-powered capabilities.
Every financial entity on the planet is responsible for knowing who utilises its services. While this is important at the onboarding stage when someone is initially setting up an account, Know Your Customer or KYC activity continues long after an account has been authorised. Ongoing KYC monitoring provides the framework for flagging unusual activity or behaviour that may be fraudulent. The more data banks and other financial institutions can utilise during this process, the more effective their identification and alerting can be. PETs enable financial entities to securely leverage the widest possible range of data sources to form the best understanding of the customer.
Sophisticated criminals understand internal bank processes well enough to exploit the gaps. Since money laundering frequently crosses international borders, financial service analysts and investigators must be able to source datasets from multiple jurisdictions and when possible, from government or law enforcement sources. Data sharing between a commercial entity and a public body is only possible when sensitive identifiers are protected during processing. PETs uniquely enable this type of secure data sharing and collaboration to be possible.
The battle against economic crime is a huge focal point of organisations working in and around the financial services industry. While new tools and capabilities are being developed every day to help in the fight, the ability to securely leverage data is foundational to their success. Advances in PETs are helping ensure data can be used securely and privately across a myriad of boundaries and silos, allowing users to extract value without escalating risk. Regulators and other government stakeholders have taken notice — and the industry is increasingly looking for ways to leverage both data and technology to win the fight.
