Financial institutions are increasing their technology investments to counter the surge in AI-powered fraud, according to a recent survey by regtech firm Complyadvantage. The study reveals that 86% of financial compliance chiefs are actively exploring new technologies, including AI, to combat fraud, with 66% identifying AI-powered scams as an emerging threat.
Growing investment in technology to combat fraud
Financial institutions are taking proactive measures to address the growing menace of AI-driven fraud, with 86% of financial compliance leaders dedicating resources to invest in new technology solutions, according to a survey conducted by Complyadvantage. Banks and financial services firms are racing to stay ahead in this ever-evolving landscape, where criminals harness artificial intelligence to devise sophisticated scams.
AI-powered scams on the rise
The survey highlights the escalating concern surrounding AI-powered scams, with two-thirds (66%) of compliance chiefs flagging them as a significant and growing threat. Criminals increasingly turn to AI technology to devise novel ways to defraud customers, pushing financial institutions to explore innovative methods to counter these threats.
Consumer comfort levels lag behind
While financial institutions fervently embrace AI-driven solutions to combat financial crime, there appears to be a disconnect between their efforts and consumer sentiment. The survey revealed that only 40% of bank customers expressed comfort with banks using AI to tackle financial crime. This indicates that despite the industry’s push for advanced technology to safeguard financial transactions, consumers may require more education and reassurance regarding AI’s role in protecting their assets.
AI: A double-edged sword in the fight against fraud
Vatsa Narasimha, the CEO of Complyadvantage, acknowledged the dual nature of AI in the ongoing battle against fraud. He stated, “Today, AI is being utilized by both criminals – who are using it as new ways to defraud customers – and institutions, who are using it to stay ahead of fraudsters and defend their customers.” This underscores the importance of ethically and effectively leveraging AI to protect consumers and the financial industry.
AI-powered fraud detection prevalent across the industry
The findings of Complyadvantage’s survey align with a previous study conducted by UK Finance, a banking trade body. In November, UK Finance reported that 91% of financial services firms already leveraged predictive AI for fraud detection and risk analysis. This widespread adoption underscores the urgency with which the industry is embracing AI to safeguard financial transactions.
Rising fraud epidemic in England and Wales
The prevalence of fraud in England and Wales has reached alarming proportions, accounting for approximately 40% of all reported crimes. Financial institutions are grappling with the dire consequences of this surge in fraud, with British citizens losing a staggering £580 million in the first half of 2023 alone. The financial toll on individuals and the industry is undeniable, necessitating swift and effective measures to combat this growing threat.
AI-based scams pose unprecedented risks
Nikhil Rathi, Chief Executive of the Financial Conduct Authority (FCA), warned in July about the potential disruption caused by AI-based scams, including deepfake technology to impersonate well-known figures endorsing fraudulent investment schemes. He emphasized that these AI-driven scams could disrupt financial services on an unprecedented scale, urging the industry to remain vigilant and proactive in countering this emerging threat.
New regulatory framework to tackle fraud
In response to the escalating fraud challenge, the payments regulator is set to introduce new rules on October 7th. These rules will hold sending and receiving firms equally liable for reimbursing victims in nearly all fraud cases, marking a significant shift in accountability within the industry. Financial institutions must collaborate closely to ensure that customers are adequately protected against fraudulent activities.
As AI-driven fraud rises, banks and financial services firms commit substantial resources to develop and deploy advanced technologies to counter these threats. However, consumer comfort levels with AI-driven solutions still lag, highlighting the need for effective communication and education to bridge this gap. With new regulatory frameworks, the industry is taking proactive steps to hold firms accountable and better protect consumers against the growing menace of fraud. The battle against AI-powered fraud is an ongoing one, and the financial sector remains committed to evolving its strategies and technologies to stay one step ahead of the criminals.