Financial crime is a major challenge faced by banks worldwide, and the fight against it requires sophisticated tools and approaches. In the UK, transaction monitoring (TM) has been the backbone of banks' efforts to deter financial crime. However, the TM
approach has one critical flaw: it does not provide a cross-industry view of financial transactions, making it difficult to detect suspicious behaviour when criminals transfer money between multiple banks.
This is where shared industry insight comes in. After the Small Business Enterprise and Employment (SBEE) Act of 2015 made it possible for banks to share current account turnover data with credit reference agencies, it provided valuable aggregate transaction
data that could uncover previously hidden risks of financial crime.
By assessing the total inflows and outflows for a business, drawing on data from every current account, banks can establish a complete picture of a company's transaction behaviour across the entire banking industry. This enables banks to profile businesses
and establish precisely what account activity is normal for each one, as well as identify deviations from that norm.
One of the key advantages of this approach is the ability to identify patterns that are key indicators of money laundering. For example, sustained increases in credit turnover, which are purposely slow and gradual, are a common tactic used by money launderers
to avoid detection. This approach is commonly known in the industry as ‘boiling the frog’.
The premise is that if a frog is suddenly put into boiling water, it will immediately jump out. But if it’s put into tepid water that’s then brought slowly to the boil, the frog won’t notice the danger before it’s too late.
Similarly, if an investigator only notices a steady increase, they will probably gain false confidence from previous reviews, where the increase in account activity has been noted but disregarded owing to its gradual nature. By identifying these patterns,
banks can detect and prevent financial crime more effectively.
Money launderers also prefer to transfer their income out of an account quickly, often within the same day, to avoid detection. Banks can detect this by developing a low average balance 'flag', which assesses when the remaining balance is low given the company's
scale and profile. Additionally, banks can assess whether the company’s total inflows and outflows being transferred through UK banks accounts are ‘normal’, given the company’s age, size, and sector its operating in.
It is clear that the fight against financial crime requires a multi-faceted approach, and shared industry insight is a critical component of this. While the TM approach has been effective to some extent, banks must look beyond it to detect and prevent financial
crime effectively. By leveraging shared industry insight and developing sophisticated tools, banks can stay one step ahead of financial criminals and protect themselves and their customers from harm.