In today's rapidly evolving world, where revolutionary technologies and global connectivity are transforming financial systems, the fight against financial crime is now pivotal to growth and success. Fraud and financial crime which includes money laundering, bribery, corruption, cybercrime, insider trading and more, makes fraud and financial crime compliance integral to secure and trustworthy financial systems.

An estimated US$3.1 trillion in illicit funds flowed through the global financial system in 2023, according to NASDAQ researchopens in a new tab1. Money laundering accounted for trillions of dollars, funding a range of destructive crimes, including an estimated US$346.7 billion in human trafficking and US$782.9 billion in drug trafficking activity, as well as US$11.5 billion in terrorist financing. In 2023, fraud scams and bank fraud schemes totaled US$485.6 billion in projected losses globally.

“The sophistication of techniques implemented by criminals in the digital age is making it difficult for traditional processes and technologies to keep pace,” says Éric Lachapelle, Partner and National Leader of Financial Crimes Services at KPMG in Canada.

What can forward-looking organizations do to combat financial crime’s costly and relentless impact on individuals, businesses and society as a whole? They should prioritize robust compliance measures, foster a culture of integrity and harness technology specifically tailored to mitigate today’s growing risk landscape.

A paradigm shift is inevitable — but it is more likely to be an evolution over time. This article explores six prominent trends expected to shift the model of disrupting financial crime compliance over the next five to 10 years and the key actions organizations can take to better combat financial crime.

Trends shaping the future of financial crime compliance 

• Geopolitical and economic environment: In today’s hyper-connected digital economy, geopolitical events and economic volatility in one region can have cascading effects on global markets and financial systems. Geopolitical tensions, trade disputes and sanctions can incentivize individuals and entities to engage in illicit financial activities that circumvent restrictions or take advantage of gaps in monitoring.
  
  Geopolitical and economic shifts may lead to the migration of illicit funds across borders. Understanding these dynamics is crucial for organizations and regulatory bodies to develop proactive measures and strategies that effectively mitigate the proliferation of financial crime.

• Upward trend in the cost of compliance: The rising cost of compliance globally can be attributed to several interconnected factors, including global regulatory frameworks that are becoming more intricate and detailed. Financial institutions must navigate a complex web of rules and regulations, often spanning multiple jurisdictions. Regulators are imposing stricter AML and counter-terrorism financing measures. Moreover, the possibility of substantial fines for non-compliance causes organizations to invest in robust compliance programs, increasing overall costs.
  
  Organizations can invest in technology to streamline compliance — but upfront expenses contribute to rising compliance costs. Adoption of advanced analytics and artificial intelligence for fraud detection may require significant investment in infrastructure, data management and skilled personnel.
  
  Heightened awareness of third-party risks requires organizations to implement more rigorous due diligence and monitoring processes for their suppliers, partners and service providers, ultimately contributing to compliance costs. Overall, these factors suggest that the cost of compliance is likely to increase significantly over the next five to 10 years as organizations strive to navigate an increasingly complex regulatory landscape and mitigate crime risks.

• Growing customer expectations: The financial sector is being transformed by digital technology amid the proliferation of online services and fintech — and the evolving expectations of today's connected customers. It is, therefore, crucial for both the public and private sectors to invest in technologies. Moreover, regulatory bodies are encouraging the adoption of digital solutions for compliance processes.
  
  As regulations evolve to accommodate digital advancements, those organizations that prioritize and invest in seamless digital experiences for compliance can gain a competitive edge. Customers prefer services that offer a smooth digital journey over those that rely on cumbersome processes such as KYC screening.
  
  Organizations are now conducting the KYC due diligence process through virtual platforms. Digital evaluation of identity documents can reduce document fraud and enhance confidence in KYC processes, along with expediting customer onboarding. KYC has become a focal point for innovation around digital customer communication, automated workflow, electronic document apps, automation and analytic tools. To help ensure a seamless onboarding process, you should choose a provider that can offer you leading technology solutions for this new era of rapid and seamless services.
  
  Growing expectations for a modern digital journey in financial crime compliance are likely to be driven by a combination of technological advancements, changing consumer behaviors, regulatory encouragement, and the broader shift toward digital transformation in various industries. 

• Significant and rapid developments in AI: Technology solutions that leverage data and advanced technologies are expected to drive the evolution of financial crime compliance. Good data governance and risk-based approaches to data lineage will provide a pathway to complete, accurate and timely data. Financial institutions will also move to an integrated solution supported by strategy.
  
  Financial crime detection is expected to evolve dramatically over the next 10 years. The next generation of detection tools are likely to be more dynamic and use AI to assess real threats and enhance alerts requiring investigation. The global financial crime and fraud management tech solutions market is expected to experience significant growth between 2024 and 2031.2 AI is positioned to assume a pivotal role in combating financial crime, particularly fraud detection, and rapid progress to date is reshaping the banking and financial sector. It's inevitable that AI will soon become an essential component of the industry. Real-time monitoring, particularly for fraud and sanctions violations, will take precedenceInstitutions need a cost-effective, sustainable, and scalable tech solution to financial crime risk detection and investigation — using innovative technology such as workflow, analytics and machine learning to improve and accelerate risk detection and remediation. They also require a close follow-up on the regulatory framework and changes. There should be a rapid increase in the deployment of machine learning and AI to detect financial crime. This is likely to start with the use of machine learning in the first-level classification of alerts, earlier flagging of higher-value cases and less time spent reviewing false-positive alerts.
  
  In addition, AI/ML model validation should give extra importance to the assessment of model transparency so that various stakeholders have a clear understanding of the mechanisms in use. ‘Explainability’ pertains to the capacity to comprehend and assess the decisions and rationale behind AI predictions.
  
  Explainability creates transparency and trust. Users have an insight on the inner workings of the models. Algorithmic accountability allows developers, auditors, and regulators to scrutinize the decision-making processes and identify potential biases and errors. And human-AI collaboration helps to review and interpret outputs, provide feedback, and enhance the model. Lastly, error detection and debugging can help developers improve accuracy and reduce the potential risks associated with incorrect decisions.
  
  AI algorithms can analyze substantial volumes of financial data in real-time and identify patterns, anomalies and suspicious transactions that could potentially indicate fraudulent activities. AI-powered systems can evaluate the risk linked to customers, accounts, or transactions by considering various factors, including transaction history, customer behavior, geographic data and social network analysis. In addition, AI systems can monitor transactions, detect potential compliance violations, generate reports, and ensure adherence to relevant laws and regulations.

• Data analytics capabilities: Data aggregation can accelerate the implementation of effective financial crime systems. Combining data from diverse sources such as transaction records, social media and public records provides a broad-ranging view of individuals and entities. This holistic approach enhances the ability to detect and prevent financial crimes.
  
  How data is stored and retrieved is just as crucial as its smooth flow through effective information-sharing mechanisms. Data quality significantly impacts the accuracy and effectiveness of financial crime detection and prevention. Forward-looking organizations are more likely to shift their focus — from simply adopting the latest regulatory technology to streamlining financial crime processes. How? By focusing on data providers that emphasize accuracy to reduce risk exposure, since inaccurate or incomplete data can lead to incorrect risk assessment, missed suspicious activities or false alarms.
  
  While high-quality input data is indispensable, it does not guarantee high-quality output by default. Data processing and interpretation are vital — outputs could be flawed if data is inadequately processed, misinterpreted, or misapplied. Adopting robust data governance policies is imperative to ensure standards are adhered to, and human errors are minimized.
  
  Predictive modeling, anomaly detection and forensic analytics are just a few of the advanced techniques that businesses are likely to use to detect and prevent fraud in the future. With financial systems becoming increasingly globalized, extracting knowledge and insights from AML/CFT data is no longer a specialized skillset confined to a select group of professionals. Today’s financial institutions are introducing various training initiatives organization wide.
  
  Advanced analytics tools can identify intricate patterns and anomalies in financial transactions, helping to flag potentially fraudulent activities. By analyzing historical data, predictive analytics can forecast potential areas of vulnerability and predict future financial crimes. This proactive approach enables institutions to implement preventive measures before fraudulent activities escalate. Integration of advanced data analytics is expected to revolutionize the fight against financial crime by providing proactive, real-time insights while fostering collaboration among stakeholders. This evolution will be crucial amid increasingly sophisticated criminal activities.

• Compliance and efficiency: The focus on effective financial crime risk strategies will increase over the next 10 years. There is an opportunity for regulators and the industry to work closely together on desired outcomes. Regulators worldwide are placing a strong emphasis on the significance of personalized, risk-centric strategies in the fight against money laundering and other unlawful financial activities.
  
  Several factors currently hinder financial crime compliance and efficiency, including data privacy concerns during cross-border financial crimes. Jurisdictions have different legal standards and requirements for collecting, storing and processing data, which limits the sharing of information on financial crime. In addition, the cross-border nature of combating financial crime increases the risk of data breaches between different levels of cybersecurity measures and regulatory oversight. Moreover, financial crime investigations require sensitive financial information to be collected and analyzed, making it critical that privacy and security are adequate to maintain both trust and regulatory compliance.
  
  The focus on effectiveness in financial crime risk management is expected to increase as financial institutions recognize the need for more robust, adaptive and technologically advanced approaches to rising financial crime threats. The combination of advanced technologies, regulatory expectations and collaborative efforts will be central to achieving a more effective and resilient risk-management framework.