Nasdaq and Verafin just published their first European Financial Crime Report revealing an alarming estimate of $750 billion in illicit funds circulating through the European financial system and $104 billion in fraud being perpetrated. Besides these alarming figures, the report is notable for its comprehensive research approach to illustrating the scope and impact of financial crime. It brings together three different types of information:

1. A quantification of the amount of global financial crime globally across fraud and money laundering
2. Deep dive interviews with experts in financial crime within Europe
3. Survey of over 250 financial crime executives across 9 European countries

Contents

The report has quantified the dollar amounts of Fraud and Money laundering for Europe, the EU, the UK and the Nordic countries. It breaks each of these down into their constituent components (e.g. drug trafficking, terrorist financing, and human trafficking for AML and into 8 subcategories of fraud). The report also goes into the impact of recent EU and UK regulation related to financial crime prevention. Executives discuss what is working and what isn’t regarding the UK’s Payment System Regulator Reimbursement policy (PSRR) intended to reduce payment fraud and the EU’s Sixth AML Directive (AMLD6) and UK’s Economic Crime and Corporate Transparency Act (ECCT) which both encourage data sharing across banks. There is also quantitative survey data on these topics. Perhaps most importantly, the report provides a point of view of what can be done to improve the prevention of both AML and Fraud in the region. The report stresses the need for industry collaboration and information sharing as an actionable and effective strategy to better fight financial crime. This change can be enacted with regulatory guidance for public-private partnerships, as well as greater regulatory support for private-private information sharing between banks. It provides recommendations around aligning regulations, breaking down barriers to collaboration and investing in innovation.

Insights

This work has significantly deepened our understanding of the technologies and approaches our clients are using to better fight financial crime. Some of the more interesting insights from the report:

• Only 51% of the financial crime executives surveyed are more likely to share information with other banks given the changes meant to encourage this in the UK’s ECCT and article 75 of the EU’s AMLD6.
• While a relatively low 11% of banks have merged Fraud and AML into one organization, 26% have merged some parts of these groups to save on costs and 42% sharing of either technology or data across them.
• 58% plan to invest in new solutions or systems for financial crime prevention and 74% will increase their use of AI.
• Looking specifically at authorized push payment fraud, the scams of greatest concern were: investment or cryptocurrency scams (56%), impersonation scams, 46%, and romance and confidence scams (44%). Pig butchering was surprisingly fifth down on the list but it overlaps considerably with the top three.
• Survey respondents said regulators could help most by encouraging technology innovation (36%), typology-specific priorities and guidance (also 31%), and bank-to-bank information sharing (19%).

Nasdaq's European Financial Crime Report is an interesting deep dive into the state of financial crime in this region. We hope this report serves as an urgent call to action and encourages the industry to work together to combat financial crime.