Should corporates have faith in their banks' security systems? Banks's legacy systems are a key weakness in fighting financial crime, while evolving criminal methods is a pervasive challenge.

The latest report from Lexis Nexis – Future of financial crime risks 2017 – examines the financial crime challenges the UK financial industry faces in 2017.

Some of the key industry trends identified by the banking professionals who took part in the study include:

• More specialised skills hiring and focused recruitment; the increased complexity of regulations and crime is shifting the focus from mass hiring towards hiring financial crime professionals with specific compliance-related skills, and even looking outside of the traditional skillset for technologists.
• Banks are taking more of a case-by-case approach to de-risking influenced by a variety of different factors.
• Compliance costs continue to rise, driven by increased regulatory volumes and complexity, which in turn drives more human resource hiring and technology investments along with fear of the cost of failure.
• RegTech companies could become an alternative to costly system upgrades and overhauls, though some banks are adopting a “wait and see” attitude.
• The Trump Administration is creating concern around the direction and nature of future US sanctions and US banking regulations.

Technology falling behind

In particular the report found that the effective deployment of technology is not keeping pace with financial crime and could ultimately become a barrier to fighting it. Part of the problem is legacy technology but regulation technology (regtech) could potentially provide an alternative to the complete replacement of legacy systems. The report noted a comment by the Financial Conduct Authority's (FCA's) Christopher Woolard during a speech at the BBA FinTech conference in September 2016: “RegTech has the potential to free up large sums of operational and capital expenditure which are currently spent on compliance. This potentially increases firms’ capacity to innovate.” Woolard's comment acknowledges the heavy burden that regulatory compliance places on financial institutions and companies. Regtech offers a glimmer of hope that compliance will be much smoother and hi-tech in future.

Keeping up with the criminals

Sixty-nine per cent of the survey's respondents said they were somewhat concerned that legacy technology is a barrier to fighting financial crime, while 23 per cent said they were very concerned about this. And some of the technology challenges to combatting financial crime were as follows:

• the ability to keep pace with changing criminal methods (41 per cent)
• technology location that could inadvertently cause compliance breaches (37 per cent)
• expense of new technology solutions (39 per cent)
• 53 per cent of large retail/wholesale banks say frustration of multiple systems across various jurisdictions

The survey also asked about the single biggest financial crime risk to an organisation and the results – as shown in the graph below – found that evolving criminal methodologies was by far the biggest perceived risk.