Financial criminals vs. financial institutions: A neck-and-neck race in the financial sector

Financial crime is on the upswing in the digital era. But the regulation and technology that have been required to both comply and compete in the new financial landscape are leading to changes that will more innovatively secure the sector.

AuthorLuis MaldonadoProfessor IE University and Senior Advisor at everis

Technology in the financial sector has important implications in the transformation of financial institutions. It is changing how banks look and feel, how they operate and interact with clients, their value proposition, their role within the financial ecosystem, and how they comply with current and emerging regulation. There is no question that the financial system is increasingly complex and global due to the adoption of new technologies. And while technologies are giving legacy financial institutions a well needed digital face-lift, they are also creating a fast-shifting, global landscape, leading to cracks in the system big enough for financial criminals to slip through. Illegal activities in the financial sector have been staying one step ahead of regulatory solutions as criminals move globally and across borders, and many of the regulations implemented to fight them are created on a national scale. But moving forward, as financial institutions begin to more agilely adopt tech solutions to not only comply with regulation but to innovatively form part of the new financial ecosystem, the tech race between financial criminals and financial institutions will become closer to call. The IE Law School and everis joint 2018 report “Technology in banking: the opportunity to comply and complete,”  takes a closer look at trends in financial crime and how technology is being used by both regulators and financial institutions to fight the crime it may have once enabled.

Financial crime on the upswing

Money laundering, terrorism financing, and fraudulent activities have flourished in a global system where quality data and effective communication between the private and public sector across borders have not kept pace. In 2017, according to Europol, only 10% of suspicious transactions communicated in the European Union were investigated, and the probability of these funds being confiscated was only 1%, using 2017 prevention models. In addition, Spain’s Executive Service of the Commission for the Prevention of Money Laundering and Monetary Offences (SEPBLAC) recorded an 18% increase in suspicious transactions from 2014 to 2016; and in the US, two million reports of suspicious activity were submitted to US financial intelligence authorities in 2016. Cryptocurrencies, sharing economies, and high volume, difficult-to-track instant message payment systems are some of the technologies that have opened gaps between tech and security measures, allowing money laundering and terrorism financing to grow. The numbers say it all, with an overall 60% increase in suspected money laundering cases in the last five years alone. Fraud, including loan fraud, payment fraud, phishing, and money mules, has also grown significantly in the digital era. According to The Nilson Report, debit and credit card fraud is on the rise, with financial institutions operating across multiple channels, and has meant 22.8 billion dollars in losses. This figure is 4.4% more than in 2015 and twice as much as in 2012. Card fraud is predicted to grow to a staggering 32.96 billion dollars in 2021 and to over 43.78 billion dollars by 2025. Phishing (obtaining a person’s confidential information to gain access to their accounts or other financial products), and loan fraud (using identity theft to unlawfully obtain a loan with no intention of paying it back) are also on the rise in the digital era.

While technologies are giving legacy financial institutions a well needed digital face-lift, they are also creating a fast-shifting, global landscape, leading to cracks in the system big enough for financial criminals to slip through. 

What regulators are doing about it

Although it looks like the criminals are winning the race in the current climate, regulators across the globe have been pulling out all the stops to gain speed. Here’s a look at some of the regulations being put in place to combat financial crime in the digital era:


  • Fourth Anti-Money Laundering EU Directive: This directive entered into force in June 2017. The directive strengthens requirements for risk assessment, promotes transparency, encourages the exchange of information, and expands the sanctioning powers of competent authorities in an attempt to combat money laundering and terrorism financing.
  • Fifth Anti-Money Laundering EU Directive: Adopted by the Council of the European Union, this directive which reinforced preventative measures against terrorism financing entered into force on July 9, 2018 (member states have 18 months to transpose the law). It focuses on combating risks associated with new payment methods, especially cryptocurrencies.
  • Sixth Anti-Money Laundering EU Directive: This Directive was formally adopted on October of 2018 and complements the criminal law aspects of the 5th Directive in order to provide enhanced punitive measures and include other means to extend criminal liability to organizations, among others.

United States

  • Through heavy sanctions for non-compliance with financial regulation, especially those related to the prevention of terrorism financing, the United States has bolstered efforts to combat financial crime. (BNP Paribas is the most significant case, when it was fined 8.9 billion dollars for violating economic sanctions and hiding transactions to Sudan, Iran, and Cuba).


  • UK Bribery Act 2010: This act makes companies liable for corrupt acts committed by persons acting on behalf of the company and in so doing ensures greater risk assessment, due diligence, communication, and monitoring and review.

However, the biggest problem current regulation has in the fight against financial crime is the inability to effectively share information based on data privacy restrictions or information silos, which can undermine their effectiveness. Improving communication between the private sector and the government and higher quality data is fundamental to more effectively fight terrorism financing and money laundering. And technology is proving to be the fuel needed to make greater strides.  

The biggest problem current regulation has in the fight against financial crime is the inability to effectively share information based on data privacy restrictions or information silos, which can undermine their effectiveness

How technology could help financial institutions pull ahead

Compliance with more stringent regulatory requirements has proven complex and challenging for many financial institutions, but it has also spurred innovative tech solutions that create a healthier, more secure financial ecosystem. The increasing implementation of the following technologies has had an enormous impact on the fight against financial crime.

Machine Learning

Machine learning allows for continuous, autonomous learning, pattern detection, and fine-tuning. In the fight against money laundering and terrorism financing, it is effective in detecting patterns of behavior, techniques for terrorism financing, organizing large volumes of data, and identifying illegal operations that were not marked as alerts. Machine learning systems can detect suspicious behavior and set alarms, making it easier for analysts to review any that exceed alarm thresholds. This technology is also constantly revising and adjusting tools in order to successfully detect patterns and make accurate predictions from large amounts of data.


Robotics helps institutions more effectively collect data, allowing analysts to concentrate on simply interpreting the data and carrying out the appropriate investigations. Some financial institutions are using robotics to help collect Know Your Customer (KYC) data in a world with increasingly stringent requirements, data fragmentation, and multiple external sources.


The use of voice recognition, digital fingerprints, iris scans, and other physical characteristics, as well as behavior biometrics, which studies behavior patterns such as how often a user clicks the mouse, is significant in the fight against identity theft and fraud. This technology also helps secure the new trend in digital onboarding (signing up for accounts and other financial products and services without being physically present).

Big data

Big data technology allows for the collection, monitoring, storage, and analysis of large amounts of data. These new systems mean financial institutions can more successfully use clients’ profile and transaction information to fight fraud and other types of financial crime.


Automation can significantly help identify the true owner of a company or asset. It is also useful in evaluating risk indicators and reporting. Rick-indicator automation allows entities to evaluate risks, discover vulnerabilities and measure the effectiveness of the systems in use in a more agile and efficient way.


Blockchain technology is being used to more effectively share information safely. This technology can help ensure the integrity of a database and help with effective fast and secure communication between banks and other entities, which is key in the fight against financial crime in the fast-paced digital world. Technological transformation in the fight against financial crime is not only a tool that helps financial institutions comply and compete, it can also help improve client trust and help change values into action.

Access the article in Spanish here

Luis Maldonado has developed his career finance, both in the public and private sector. He was advisor to the Minister of Economy in Spain, Director of Strategic Consulting at PwC and CSO for a retail bank. He has also worked for five years at the International Monetary Fund, where he held different positions, as advisor to the Managing Director and in the Monetary and Financial Markets Department. More recently, he was Managing Director of the PwC-IE Business School Financial Sector Center. Currently, he is professor at IE Business School, Senior Advisor at Everis and Senior Digital Financial Sector Specialist at the IFC (World Bank Group). Luis Maldonado holds a Ph.D. in Economics from Alcalá University, he is State Economist for the Government of Spain, and he holds Degrees in Law and in Business Administration from ICADE University.

Note: The views expressed by the author of this paper are completely personal and do not represent the position of any affiliated institution.