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Can AI help banks with security and compliance?

Artificial Intelligence (AI) is a technology with immense potential in the banking and financial sector. There are several AI-based apps and solutions already in use in the banks with trends favoring the further expansion of AI in banking in the coming years. Estimates abound about the true potential of AI in the space. For instance, a report from research firm Researchlinker predicts that the global AI in the Fintech market is expected to reach USD 22.6 billion by 2025 with an expected CAGR of 23.37% in the period of 2020-2025.

Given that high visibility of the function, security and compliance are critical areas wherein AI can play a massive role. Before, moving to the role of AI in the security and compliance aspect for the banks, it is important to understand the major issues the banking industry is facing in this area.

  • Security and Compliance Issues in Banks

  • Internet Insecurity: July 2020 witnessed a data breach leading to the leaked account details of over 7.5 Million users of Dave, a digital banking application. BancoEstado, one of Chile’s leading banks had to shut down all its operations in September 2020 due to a ransomware attack. Ransomware and phishing attempts grew by 64% in 2020. Also, banking user credentials available for sale on the dark web increased by 429% in the last year. Online banking is an important facility offered by banks in the present times. However, it has opened new vistas for malicious entities to launch attacks, such as ransomware, phishing, and data breaches.
  • Fraudulent Behavior: The four major types of fraud recorded in the financial and banking sector are identity theft, electronic fraud, credit/debit card fraud, and cheque fraud. The older or less tech-savvy people are primarily targeted by the fraudsters to gain confidential personal and banking information which is later misused.
  • Compliance and Regulatory Concerns: The data privacy and protection rules and regulations applicable to the banks are regularly changing due to the increased frequency of privacy and security violations. Brazil, for instance, came up with Brazil General Data Protection Law in 2019. In the same year, Thailand passed the Personal Data Protection Act. The European Union came up with Anti-Money Laundering Directive 5 in 2020. The United States also made amendments to the privacy rules under Gramm-Leach-Bliley Act 2020. The European Banking Authority also published revised guidelines under Payment Services Directive 2 in 2019 covering stronger customer authentication, mobile app security, and dynamic linking. That apart, regulations like GDPR and CCPA impose strict conditions on how consumer data is stored, protected, and used.

No wonder banks are finding it complicated to adhere to all the new compliance rules and regulations.

  • Role of AI in Banking Security and Compliance

  • Cybersecurity and Privacy: Phishing scams are becoming more common in the banking sector leading to enormous fraudulent behavior. Natural Language Processing (NLP) can assist banks to analyse the massive volumes of emails and determine the specific sections in the mails that might indicate phishing attempts. The AI-based algorithms can also be trained to flag suspicious emails for enhanced customer data security and privacy. Tessian is one such vendor offering an AI-based email monitoring system for banks and financial institutions. Expert System is another company offering AI and NLP-based automated systems to identify phishing emails and attempts.

    Malware attacks, especially ransomware attacks are increasing in the banking sector. AI can identify and detect the specific behavior and patterns that malicious entities may use to give shape to such ransomware attacks. AI-powered with Machine Learning can carry out stack trace analysis to notice and prevent ransomware and other malware attacks.

    AI can be integrated with Big Data and Internet of Things (IoT) technologies to develop and implement security risk reduction systems for banks too. The cybersecurity information can be continually analyzed by such a system to spot risk areas and generate alerts accordingly. Data breaches and malware attacks can also be controlled and prevented with these solutions.

  • Compliance and Regulatory: As per UN estimates, over USD 2 Trillion is laundered annually which makes up 5% of the global GDP. The data complexity coupled with manual involvement makes anti-money laundering a difficult task to execute. AI-powered anti-money laundering is possible through intelligent segmentation, advanced analytics, and a real-time alert system. Ayasdi is one such application already in use for this purpose. The application involves advanced transaction monitoring and utilizes machine learning to identify suspicious anomalies. Large banks like HSBC have partnered with Ayasdi to implement an AI-equipped AML solution.

    Know Your Customer, KYC check is one of the key regulatory requirements to validate and verify customer identity requirements. This can be utilized alongside anti-money laundering efforts. AI and Machine learning can analyze the online, offline, and social media information of the applicant to ensure strict KYC guidelines are met and information validated. The predictive data analytics on the associated emails, IP addresses, and proxies can further strengthen the investigation process.

    Datavisor based in Mountain View, California is offering AI and ML-based application that uses Big Data techniques and clustering algorithms to detect the application frauds. Socure in NYC is another vendor offering an AI-based identity verification system for banks.

    The discussion and development around AI in the banking sector are at an all-time high due to the possibilities and benefits the technology has to offer. Embracing AI looks to be a fruitful investment for the banks and financial organizations for improved security and compliance. Of course, it’s not easy to choose a technology solution that addresses all the specific needs of a bank. There is a lot of innovation happening and the goalposts are shifting every day. This brings the focus onto the choice of a technology partner who can help the bank understand the gaps, evaluate the options, make the right technology choice, and implement it comprehensively. A partner like ITPeopleNetwork with the knowledge, skill, and experience to create the comprehensive solutions today’s banks need.

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