AML/KYC in an Era of Increasing Loan Requests and Increasing Fakes

There’s never been a better time to be a cybercrook, as the COVID-19 pandemic floods markets worldwide with government relief monies meant for smaller companies, families and individuals. Most agree that, so far, it’s been a poorly choreographed disbursements ballet.

Add to this the rapid rise of API-powered open banking, where everything from onboarding to loan approvals happens without bankers and customers physically meeting, or even speaking. It’s opened a new chapter of fraud possibilities at a time of maximum financial disorder.

With this confluence of conditions, it’s a given that large sums will be stolen by internet thieves — and even terrorist organizations — as the fog of COVID-19 clings to societies and economies through 2020. Robust Anti-Money Laundering and Know Your Customer (AML/KYC) solutions are now emerging as critical for financial institutions (FIs) navigating risky waters.

“Criminals masquerading”

The latest AML/KYC Tracker®, a collaboration between Trulioo and PYMNTS, details the situation on the ground as banks, credit unions, fintech firms and other players in the space invest in AML/KYC and counter terrorism financing (CTF) solutions. Managing an ongoing flow of emergency loan requests — and finding the fakes hiding among them — has become a major challenge for FIs.

“The financial strains imposed by the COVID-19 pandemic have generated powerful demand for loans, especially among small to mid-sized businesses (SMBs),” according to the June 2020 Tracker.

“FIs seeking to rapidly deliver support to these companies must do their due diligence to ensure loans do not accidentally go to criminals masquerading as businesses in need,” the Tracker states, adding that “players in the space suggest that open banking could put know your customer (KYC) procedures on the fast track.”

Open banking has gained fans during the pandemic with a touchless, instant, digital-only value proposition ideally suited to the year of social distancing. “Interest in such capabilities is growing during the COVID-19 pandemic, with consumers and business owners relying more heavily on remote services amid stay-at-home mandates,” the Tracker states. “There appears to be strong demand for such services, too, with the global open banking market projected to increase in value at a compound annual growth rate (CAGR) of 24.4 percent between 2019 and 2026, hitting $43.2 billion.”

Keeping consumers and FIs safe as open banking and APIs proliferate is being accomplished with multifactor authentication (MFA), better customer communications, and technology that can read signals and catch fraud attempts at scale and in real time.

“FIs that participate in open banking need to put safeguards in place so vulnerabilities in one third-party provider’s defenses do not put customers at serious risk,” the Tracker states. “FIs must use highly secure methods to authenticate customers’ identities and make it difficult for cybercriminals that manage to steal customer information to pass themselves off as legitimate customers.”

North America lags behind EU on compliance spend

The European Union (EU) took the regulatory lead with GDPR and PSD2, a list of consumer data privacy protection laws that has grown to include California’s Assembly Bill 5 (AB5) and a slew of similar proposed legislation that makes AML/KYC missteps costly and punitive.

The new AML/KYC Tracker® notes the disparity between AML/KYC solution investments in Europe compared to North America, concluding that much remains to be done domestically.

“North American FIs spent $32 billion on compliance with financial crime regulations in 2019, for example, while European FIs spent $137 billion,” the Tracker states. “Both figures overshadow other global regions’ investments, such as the Asia Pacific region’s $6 billion and Latin America’s $5 billion.”

Other highlights from the latest AML/KYC Tracker include these items of interest: