Banks think they can catch up despite being 8 months behind criminals. Can they really?

By Puja Sharma

New research from RedCompass Labs, a payments modernisation expert and financial crime red flags, reveals that US banks believe they are eight months behind criminals, with the largest institutions believing the gap is as wide as 23 months.

Despite the eight-month head start, 75% of banks feel confident they can close this gap, and 25% feel they could “maybe” catch up. The question is: How do they plan to do so? The research highlights how banks are drastically underestimating criminals, with respondents believing that criminals take an average of four months to adapt after learning a new financial crime is being detected. In reality, cybercriminals can exploit newly discovered vulnerabilities within days or even hours. 

The research, “Financial crime detection: What holds banks back?”, includes findings from a survey of 300 senior payments professionals at US banks about how financial services are addressing the multi-trillion-dollar financial crime epidemic and why only 1% of financial crimes are brought to justice. 

The survey found that banks’ resources are stretched across multiple types of financial crime as they grapple to keep up with emerging crimes, some of which are now as big a focus as the traditionally bigger ones. For example, pig butchering has become a significant concern, with 27% of banks prioritising these scams, on par with drug trafficking at 28%. The research also revealed that proliferation financing (33%), drug trafficking (31%), and cybercrime (30%) are the three most difficult crimes for banks to detect, citing a poor understanding of the personas involved as a common reason as to why.

To help banks close the gap to the criminals, RedCompass Labs has launched its RedFlag Accelerator Portal, which empowers banks and financial institutions with the gold-standard actionable intelligence, red flags and guidance they need to understand, identify and address financial crime. It relies on personas rather than rules to help identify suspicious activity in financial data by looking for patterns in customer behaviour indicative of human crimes while reducing the likelihood of false positives.

Human trafficking has gone from a $150 billion crime to $350 billion in six years, and banks need a new way of detecting these crimes. The RedFlag Accelerator Portal provides reference data, red flags and a persona-based approach that enables financial institutions to more accurately identify and intercept illicit transactions, strengthening their defences against criminal networks. 

Tom Hewson, CEO at RedCompass Labs, said, “There’s nothing organised 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 that 1% of these crimes are brought to justice. That feels like an error of focus. It’s not an error of ability.

“It’s not that the problem is so hard and so complex. It’s also that we hide behind process and data-sharing interpretations. It is underfunding the teams that want to do more.

“Banks, by their own admission, are 8 months behind the criminals. They know the criminals are good at using the latest technology, yet they rate themselves marginally better. And still, only 1% of financial crimes are brought to justice. How can these two things be true? How can it be that banks are very good at using technology to combat financial crime, and yet 99% goes undetected? 

“But we can do better. We have the technology, the open-source data, the dark web data, and the ability to understand who is transacting, whether through IP addresses or multiple personas. We have the flags, the AI, and the tools. We have the recipe to double or triple crime detection to 10x it. 

“The question is, do we have the will? I think we do —I hope we do. This is why we’ve developed the RedFlag Accelerator Portal—the gold standard for financial crime detection. Our portal equips banks with the data and context necessary to identify and stop criminals in their tracks, ensuring that banks can finally catch up.”

Key findings:

• Internal inefficiencies are holding banks back—27% of banks blame internal governance, 26% cite an overcomplicated process, and 24% say updating fraud models is not a priority. 
• What banks need to do to catch up– Banks said the implementation of new technology (39%), streamlining internal processes (39%), and faster vendor support (38%) will help them catch up with the criminal networks.
• Banks are divided over AI– More than half (57%) of banks believe that criminal use of AI will make it more difficult to detect financial crimes, but just under a third (31%) of banks believe that their use of AI will ease the detection of financial crimes. 
• Banks underestimate criminals– Banks believe criminals take around 4 months to adapt after a crime type has been prevented. However, it’s been proven that some cybercriminals can adapt within “just a few hours.”