Financial institutions, rich in personal and financial data, are a lucrative target for criminals. Lack of expertise and legacy IT systems compound the threat posed by criminals whose skills and capabilities are often light years ahead of the institutions in their crosshairs.

“Traditional financial crime platforms have a limiting effect on our ability to fight financial crime,” Dr. Richard Harmon, managing director of financial services at Cloudera, told Investor Daily.

“A lot of that comes from the closed infrastructure that many institutions have right now. This results in a rigid data and technology environment that [require] frequent, expensive and complex retooling of applications to enable these platforms to counter new crime patterns.

"As a result, many businesses tend to be in a perpetual state of reacting to new patterns of criminal behavior and taking enforcement action, rather than proactively disrupting criminal networks today and anticipating the challenges of the future."

New types of financial crime, including synthetic identity fraud, are also exposing the weaknesses of modern financial crime prevention systems.

Synthetic identity fraud involves the use of synthetic identifiers – created with a combination of true and false information, rather than an entirely stolen identity – to apply for credit. The largest synthetic identity ring ever discovered collected $200 million from 7,000 synthetic IDs and 25,000 credit cards.

“This typology of fraud is difficult to detect as most firms have collected limited Know Your Customer (KYC) data. [is] insufficient to detect false faces early in the process,” Dr. Harmon said.

“The most effective approach to combat this is to use advanced machine learning (ML) techniques combined with a more holistic (i.e. enterprise) view of KYC by integrating other data sources from internal and external sources.

Many financial institutions rely on "static discovery rules" that are unable to cope with the ever-changing nature of financial crime. Dr. Harmon believes that institutions need to develop a "machine learning-driven environment" that has dynamic rules and built-in discovery models.

But regulators and law enforcement are also lagging behind – EU market studies estimate that only 1% of the proceeds of crime are seized by authorities.

"Financial crime is becoming more prevalent and permeates all levels of the financial services industry," Dr Harmon said.

“Criminal networks are creative, connected, collaborative and ready to take advantage of any opportunity within or around the boundaries of business operations. Now we even feature state-sponsored actors.

"All of this is deeply concerning, not just for the financial services industry and our regulators, but for society as a whole."