SecurityBrief Australia logo
Australia's leading source of cybersecurity and cyber-attack news
Story image

Interview: Cloudera on why analytics is key in the fight against financial crime

By Sara Barker
Mon 2 Dec 2019
FYI, this story is more than a year old

Financial crime is big business – and it’s not something that organisations can turn a blind eye to. You only have to look at the recent Westpac saga in Australia to see how financial crime and its implications can be severely damaging for not just financial organisations, but also their customers.

Cloudera’s co-managing director of financial services, Dr Richard Harmon, shares his thoughts about financial crime and how analytics can shape the next generation of financial crime prevention.

In general, what is the current state of anti-financial crime programs in financial institutions in Australia and worldwide? 

Financial crime has become increasingly pervasive and permeates all levels of the financial services industry. Criminal networks are creative, connected, collaborative, and ready to exploit any opportunity inside or around the edges of business operations. We now even have state-sponsored actors involved. All of this is deeply concerning not only to the financial services industry and our regulators but to society at large.

Combating financial crime is a huge challenge throughout the world, not just within Australia.  Globally, financial institutions have spent $1.28 trillion in a 12 month period to combat financial crime. Impact on business is significant, with combined revenue lost due to financial crime estimated to be $1.45 trillion in the same time period.

Despite tighter industry regulation, increased awareness and major investment more work is needed to combat financial crime.  Research on the EU market estimates that only 1% of criminal proceeds are confiscated by authorities.

These statistics illustrate the challenges the entire industry faces! One key trend that I believe is not properly emphasised is the agility and sophistication of organised crime.  As an example, synthetic identity fraud is a relatively new fraud typology and one of the fastest growing types of fraud. 

This fraud typology is difficult to detect since the limited KYC (Know Your Customer) data most firms have collected are insufficient to detect fake individuals early in the process. The most effective approach to combating this is to leverage advanced machine learning (ML) techniques coupled with a more holistic (ie, enterprise) view of KYC through integrating other data sources from internal and external sources. This is typically referred to as Alternative Data. 

Are institutions keeping up with technology, are they compliant with new laws, and most importantly – are they preventing fraud?

The short and blunt answer is no. Traditional financial crime prevention platforms have a limiting effect on an organisation’s capability to combat financial crime.  Much of that comes from the siloed organisational structure of the financial crime function.  This limits not only the automation of processes and monitoring capabilities but it also enables criminals to leverage the gaps that exist across the financial crime unit. 

However, regulatory and enforcement agencies understand the limitations of current anti-crime regimes. In response, public-private partnerships have been established to fill intelligence gaps and to encourage innovation.  

For example, Malaysia approved the National Anti-Financial Crime Centre (NAFCC) Bill in October. In Europe, the European Union is considering tighter rules  and even considering establishing a separate AML regulator – much like Australia’s AUSTRAC - to counter the flow of dirty money into the region's banks and other economic sectors.

In Singapore, the Anti-Money Laundering and Countering the Financing of Terrorism Industry Partnership launched a paper to encourage greater adoption of data analytics solutions by financial institutions in Singapore.

What does Cloudera do to help customers prevent financial crime?

Cloudera is an enterprise data cloud company that enables customers to build out platforms that support an agile, hybrid, multi-cloud environment.

These customers leverage Cloudera capabilities to both generate revenue and mitigate risks, specifically the risks relating to financial crime.

Cloudera encourages customers to take a more unified view of financial crime through the use of a data lake. Such a data lake can remove some constraints and costs associated with siloed operational, analytic and data environments.

There are five key capabilities we provide from a platform perspective which help our customers develop a successful strategy for combating financial crime.  These include real time data ingestion and analytics; advanced machine learning and artificial intelligence; data and analytics anywhere; unified security, governance, and compliance; and continuous innovation via the global open source and academic communities.

Cloudera recently released a video outlining how data and analytics can be used to fight financial crime. In it, you explain that organisations have siloed divisions for security, but they should at least integrate the analytics from those visions.

Could you expand on this point, perhaps explaining why data and analytics integration is so important?

The core of the next generation financial crime prevention platform is the ability to not only automate detection and monitoring systems but to make this much smarter than they are today.   It can only be achieved by using the latest ML and AI algorithms. 

But for these algorithms to be effective one needs a supporting cast – so to speak. This supporting cast includes a rich, high quality data environment that is not only the gold source of truth for financial crime prevention but this needs to be supplemented by alternative data that enables the organisation to have a much more holistic understanding of their customers.  

An enhanced KYC capability is not just critical to combating financial crime but it also enhances an organisation’s ability to understand their customer’s behaviour from which they can develop more personalised products and services.  From this perspective, an investment in an enhanced KYC capability is both a defensive and offensive strategy and as such should be funded from an enterprise perspective not just within the financial crime unit.

What else is new in the area of financial crime prevention?

I will split this into two categories:  What is new on the regulatory side and what is new from an industry perspective.

On the regulatory side, we are seeing more collective and collaborative ownership through public-private partnerships to tackle financial crime. For eg the Joint Money Laundering Intelligence TaskForce (JMLIT) in the UK, which is an innovative partnership between law enforcement and the financial sector to exchange and analyse information related to money laundering and wider economic threats. The taskforce consists of more than 40 financial institutions, the Financial Conduct Authority, Cifas and five law enforcement agencies. 

Another example is a program recently announced by the US regulators. This announcement was listed as the “Joint Statement on Innovative Efforts to Combat Money Laundering and Terrorist Financing” (December 2018).  In very basic terms, this new approach is designed to encourage regulated institutions to consider, evaluate, and, where appropriate, responsibly implement innovative approaches to meet AML and other illicit financial crime obligations. Pilot programs that expose gaps in a compliance program will not necessarily result in supervisory action.

The Agencies will establish projects or offices that will work to support the implementation of responsible innovation and new technology in the financial system.

From my perspective, this means that organisations are encouraged to utilise the most advanced “blackbox” ML and AI algorithms to combat financial crime – something not permitted in the consumer lending sector.  Furthermore, if they find previously hidden criminal activity that this will not necessarily result in an enforcement action and that the regulator wants to accelerate the approval and implementation process to operational these new approaches or technologies.  

I think other regulatory bodies will soon follow suit with this type of an approach.

On the industry side, much of the innovation coming into the financial crime prevention space is coming from the fintech and regtech communities.  They are accelerating the option of new “alternative” data sources and of new ML and AI enabled capabilities that address specific shortcomings in core legacy financial crime prevention platforms. Cloudera supports this community from both a platform & enablement perspective.

How could private-public-industry-academia collaboration broaden the wider understanding of financial crime, and how technology can help to prevent it?

This is a great question and something that really needs more attention and investment.

As I mentioned earlier, there are several of these collaborative efforts underway but suspect that the regulators will need to be more active to drive deeper collaboration across all parties. 

Since criminals seek the weakest link across the financial services networks, they work across many institutions and regions not just against a single institution. If collaboration can be done across multi-country or regional basis supported by a technology environment that enables data sharing then I would expect further advancement in crime awareness and prevention.

One example of financial crime that is playing out in real life lately is Westpac Australia’s breach of anti-money laundering and anti-terrorism laws by failing to report 23 million instances of fraud, accounting for $11 billion. The bank failed to conduct due diligence, appropriate reporting procedures, record keeping, and child exploitation detection.

Could something like this happen to any financial institution, and if so, what do you believe could cause oversights and failures like this?

What’s been happening in Australia recently is undoubtedly a major wake up call for financial institutions everywhere, but Australia is not unique. This is a global concern.   I think we are all aware of last year’s situation with Danske Bank and others EU institutions that have suffered similar shortcomings over the past year.    

What could the consequences be for any financial institution that ends up in such a situation?

The consequences for any financial organisation that could find itself in a situation like we’re seeing in Australia and in Europe are significant. The cornerstone foundations of any successful bank are based on trust and reputation. It can take years to build a trustworthy reputation and it can be eroded so quickly if adequate strategies and due diligence behaviours have not been enforced.

At the very least, banks will lose customers and shareholder value.  At the very worst, consequences could be much more severe with management and boards being forcibly changed.

What should other financial organisations such as banks take away from this lesson?

Existing siloed financial crime prevention functions need to be modernised with the greatest value coming from developing a holistic KYC capability coupled with a coordinated ML and AI approach across the various financial crime prevention functions.

Investment in financial crime prevention should be viewed from an enterprise perspective since these investments will yield new insights into customer behaviour and allow for a more personalised approach in delivering innovative products and services to customers.

The next generation financial crime prevention platform is not a software solution, but an institutional wide data and analytics journey as outlined by the four recommendations for gains in efficiency and effectiveness.

Any last thoughts?

I would like to end by noting a paper from McKinsey (Transforming Risk Efficiency and Effectiveness – April, 2019) that while focused on transforming risk equivalently applies to the current challenges in financial crime prevention. They cite four mutually reinforcing areas for improved efficiency and effectiveness:

  • Optimising the organisation yields effectiveness gains by clarifying responsibilities, increasing accountability, and matching talent to jobs.
  • Rationalising governance eliminates unneeded activities, frees up a scarce and precious resource – including management bandwidth - while yielding some direct efficiency benefits.
  • Streamlining and strengthening processes enable critical gains in efficiency through automation of many manual processes.
  • Digitising and deploying advanced analytics analytics permits institutions to embed automated real-time (or near-real-time) financial crime prevention controls within core processes. This reduces control failures and makes far more efficient use of valuable resources.

I think these four recommendations are great guidelines towards developing the next generation financial crime prevention platform.

Related stories
Top stories
Story image
Cybersecurity
Cybersecurity prompts upgrade for 1.3 billion electricity meters
ABI Research finds Advanced Metering Infrastructure (AMI) and cybersecurity concerns are prompting the upgrade of 1.3 billion electricity meters by 2027.
Story image
Training
Trojan cyber attacks hitting SMBs harder than ever - Kaspersky
In 2022 the number of Trojan-PSW detections increased by almost a quarter compared to the same period in 2021 to reach 4,003,323.
Story image
Cybersecurity
Comcast to use ThreatQuotient for cybersecurity operations
Comcast, the parent company of NBC Universal and SKY Group, has chosen ThreatQ Platform and ThreatQ Investigations to meet their cybersecurity needs.
Story image
New Relic
New Relic launches vulnerability management platform
New Relic has introduced New Relic Vulnerability Management to help organisations find and address security risks faster and with greater precision.
Story image
Digital Transformation
How to modernise legacy apps without compromising security
At a time when digital transformation has become central to business, even the most important applications come with a ‘use-by’ date.
Story image
Customer experience
Gartner recognises Okta for abilities in Access Management
Okta has announced it has been recognised as a Customers' Choice for the fourth time in a row in the Gartner Peer Insights "Voice of the Customer" report.
Story image
Ransomware
A third of companies paying ransom don’t recover data - report
Veeam's report finds 76% of businesses who are victims of cyberattacks paid the ransom to recover data, but a third were still unable to get their information back.
Story image
Artificial Intelligence
AI-based email security platform Abnormal Security valued at $4B
"A new breed of cybersecurity solutions that leverage AI is required to change the game and stop the rising threat of sophisticated and targeted email attacks."
Story image
Silver Peak
The path to an adaptive, modern network
Managing and securing the network looks different than it did just two years ago—especially given that most of these networks are made up of multi-generations of infrastructure stitched together over time.
Story image
Cybersecurity
BlackBerry offers Kaspersky replacement cybersecurity for the channel
BlackBerry advises that users of Kaspersky software in Australia and New Zealand undertake a rigorous risk analysis of their current security posture.
Story image
trust
9/10 Aussies to stop spending if personal data compromised
"Based on the patterns we are seeing among Australian consumers, it is evident that trust in a brand is exceptionally important."
Story image
ChildFund
ChildFund launches new campaign to protect children online
ChildFund says WEB Safe & Wise aims to protect children from sexual exploitation and abuse online while also empowering them to become digitally savvy. 
Story image
VPN
The most common online scams in Australia
No one is safe from online scammers, and many of these scammers have capitalised on the pandemic, using this confusing time to attack more people than ever.
Story image
Supply chain
Jetstack promotes better security with supply chain toolkit
The web-based resource is designed to help organisations evaluate and plan the crucial steps they need to establish effective software supply chain security.
Story image
SaaS
Rubrik Security Cloud marks 'next frontier' in cybersecurity
"The next frontier in cybersecurity pairs the investments in infrastructure security with data security giving companies security from the point of data."
Story image
Cybersecurity
Managed service providers: effective scoping to avoid costly vendor pitfalls
Managed security services are outsourced services focusing on the security and resilience of business networks.
Story image
Remote Working
How zero trust and SD-WANs can support productive remote working
The way people connect with applications and data has changed, users are remotely accessing resources that could be stored anywhere from a corporate data center to the cloud.
Story image
Sift
Sift shares crucial advice for preventing serious ATO breaches
Are you or your business struggling with Account Takeover Fraud (ATO)? One of the latest ebooks from Sift can provide readers with the tools and expertise to help launch them into the new era of account security.
Story image
Artificial Intelligence
How to ensure ethical deployment of AI implementations
The increase in automation and machine technology such as AI and machine learning has unlocked a whole new level of scale and service to organisations. 
Story image
Cybersecurity
Video: 10 Minute IT Jams - An update from IronNet
Michael Ehrlich joins us today to discuss the history of IronNet and the crucial role the company plays in the cyber defence space.
Story image
Tech job moves
Tech job moves - Datacom, Micro Focus, SnapLogic and VMware
We round up all job appointments from May 6-12, 2022, in one place to keep you updated with the latest from across the tech industries.
Story image
Cloud Security
Aqua Security createa unified scanner for cloud native security
“By integrating more cloud native scanning targets into Trivy, such as Kubernetes, we are simplifying cloud native security."
Story image
Cybersecurity
More than 40% of banks worried about cloud security - report
Publicis Sapient's new report finds security and the lack of cloud skills and internal understanding of business benefits are big obstacles for banks moving to the cloud.
Story image
Cybersecurity
A10 Networks finds over 15 million DDoS weapons in 2021
A10 Networks notes that in the 2H 2021 reporting period, its security research team tracked more than 15.4 million Distributed Denial-of-Service (DDoS) weapons.
Story image
Artificial Intelligence
Updates from Google Workspace set to ease hybrid working troubles
Google Workspace has announced a variety of new features which will utilise Google AI capabilities to help make hybrid working situations more efficient and effective.
Story image
Nozomi Networks
Nozomi Networks, Siemens reveal software integration
Nozomi Networks and Siemens have extended their partnership by embedding Nozomi Networks’ software into the Siemens Scalance LPE local processing engine.
Story image
Malware
New vulnerabilities found in Nuspire’s Q1 2022 Threat Report
“Threat actors are quickly adjusting their tactics and these exploits tend to get industry attention, but the threat posed by older and attacks still persists."
Story image
Phishing
Google reveals new safety and security measures for users
Google's new measures include automatic two step verification, virtual cards and making it easier to remove contact information on Google Search results.
Story image
Amazon Web Services / AWS
RedShield leverages AWS to scale cybersecurity services
"Working with AWS gives RedShield the ability to mitigate significant application layer DDoS attacks, helping leaders adopt best practices and security architectures."
Story image
Ransomware
Ingram Micro Cloud adds Bitdefender solutions to marketplace
Ingram Micro Cloud has announced the expanded availability of Bitdefender solutions on the Ingram Micro Cloud Marketplace.
Story image
Ransomware
Alarming surge in Conti Ransomware Group activity - report
A new report has identified a 7.6 per cent increase in the number of vulnerabilities tied to ransomware in Q1 2022.
Story image
Data Protection
Barracuda launches new capabilities for API Protection
"Every business needs this type of critical protection against API vulnerabilities and automated bot attacks," Barracuda says.
Story image
Migration
Let’s clear the cloud visibility haze with app awareness
Increasingly, organisations are heading for the cloud, initiating new born-in-the-cloud architectures and migrating existing applications via ‘lift and shift’ or refactoring.
Story image
Cybersecurity
Noname Security partners with Netpoleon to target API issues
Specialist API security firm Noname Security has appointed Netpoleon as its distributor in Australia and New Zealand.
Story image
Apricorn
Data backup plans inadequate, data still at risk - study
The Apricorn 2022 Global IT Security Survey revealed that while the majority organisations have data backup plans in place, data for many are at risk.
Story image
Cybersecurity
Hard numbers: Why ambiguity in cybersecurity no longer adds up
As cybersecurity costs and risks continue to escalate, CEOs continue to struggle with what their investment in cyber protection buys. Getting rid of ambiguity becomes necessary.
Story image
Cybersecurity
Infoblox's State of Security Report spotlights Australian remote work hazards
Attackers exploit weak WiFi, remote endpoints, and the cloud, costing 50% of organisations over $1.3 million in breach damages.
Story image
Remote Working
Successful digital transformation in the hybrid work era is about embracing shifting goalposts
As organisations embraced remote working, many discovered they lacked the infrastructure needed to support history’s first global load test of remote work capabilities.
Story image
BeyondTrust
BeyondTrust integrates Password Safe solution with SailPoint
BeyondTrust has announced the integration of BeyondTrust Password Safe with SailPoint identity security offerings.
Story image
Ransomware
Cybersecurity starts with education
In 2021, 80% of Australian organisations responding to the Sophos State of Ransomware study reported being hit by ransomware. 
Story image
Application Security
What are the DDoS attack trend predictions for 2022?
Mitigation and recovery are vital to ensuring brand reputation remains solid in the face of a Distributed Denial of Service (DDoS) attack and that business growth and innovation can continue.
Story image
SaaS
Absolute Software expands Secure Access product offering
Absolute Software is enhancing its Secure Access product portfolio, enabling minimised risk exposure and optimised user experiences in the hybrid working environment.
Story image
Workato
Workato unveils enhancements to enterprise automation platform
"The extra layer of protection with EKM, zero-logging, and hourly key rotation gives customers a lot more visibility and control over more sensitive data."
Story image
Remote Working
Australia’s remote workers face connectivity and security issues
SOTI's new report finds better video conferencing technology and improved security measures are top concerns for remote workers in Australia.