Financial Crime in The Time of COVID-19
COVID-19 continues to take its toll as its impact grows on several aspects of our lives. Celent has talked about its potential impact on financial services technology investments, while our colleagues at Oliver Wyman have talked about its broader impact across industries. A key theme identified by Oliver Wyman is “digital acceleration,” i.e., the shift of a large part of the offline economy to online, such as the sudden burst of online shopping for daily necessities or medical supplies, banking and wealth management services, insurance transactions and claims processing, and in general online payments and funds transfer for many otherwise offline activities as more and more people practice social distancing.
Rapidly evolving crisis situations can quickly become a hotbed for financial criminals who take advantage of the uncertainties and vulnerabilities in the system and perpetuate frauds for personal financial gains. Several reports have already emerged along these lines, with the INTERPOL warning of financial fraud worth several hundreds of thousands dollars linked to purchase of surgical masks and medical supplies. In this digital era, such scams can be perpetuated easily and very quickly over several channels (e.g., telephone, emails) and across borders and nation states, which makes them hard to trace and harder to block or recover. Another area ripe for abuse is stock trading: with companies and stock markets in turmoil, insiders with privileged information on company actions or government plans can engage in insider dealings and market abuse in the stock markets.
Therefore, the risks of financial crime have suddenly increased. Financial institutions need to be even more diligent and vigilant in preventing their spread and market contagion. With many financial institutions resorting to virtual work to encourage social distancing, this means their compliance departments also need to adjust and adapt very quickly. This puts pressure on cyber resiliency and cybersecurity aspects because cyber criminals are always looking to exploit any vulnerabilities in the cyber infrastructure, especially at a time like this when the load on the cyber ecosystem is very high. Financial crime compliance departments may not immediately come to mind when thinking of COVID-19, but they will have an important role in safeguarding the financial system in the coming days and weeks until normalcy returns.