Financial crime risk management is the practice of actively attempting to identify and prevent financial crime. It is done by identifying suspicious activity and vulnerabilities that an organization possesses in order to mitigate the impact of financial crime.
There are various tools that can assist with financial crime risk management, such as employing analysts or developing software to protect against financial crime. Overall, financial crime risk management comes from the concerted effort of all parties to assist in preventing and mitigating financial crime.
Financial crime risk management is the practice of attempting to identify and prevent various forms of financial crime.
As technology has advanced, cybercriminals have come up with increasingly complex and deceptive ways of committing financial crimes.
Organizations are adopting more concerted and methodical approaches to managing financial crime risk.
The Current State of Financial Crime Risk Management
Financial crime has existed since the advent of money as a medium of exchange. In the past, criminals may have physically stolen cash or other financial assets. With the advancement in technology, electronic bank accounts and electronic payments now dominate our financial infrastructure. As a result, criminals have increasingly turned to technology to undertake financial crimes.
Criminals who use technology to attack individuals and businesses are known as cybercriminals. These cybercriminals have adopted various deceptive and sophisticated methods of accessing financial data without leaving a trail. Cybercriminals may be external, sitting outside of an organization. However, they can also come from inside an organization.
These crimes can occur at any organization, regardless of its geographical location or industry. These crimes are also committed on individuals. As more data continues to transition online, the more important it is to have protective risk management measures in place.
Types of Financial Crimes
Financial crime can be defined as taking money or property illegally from another entity for one’s own benefit. Major types of financial crime include:
There are also lesser financial crimes that are not as serious in nature as above, such as:
Skimming from transactions
Using company funds for personal purchase
Who Commits Financial Crime?
Financial crime can be committed by various parties, both internal and external to an organization. This list includes:
Organized criminals – Often strategic, large-scale operations that are focused on committing financial crime
Individual criminals – Unaffiliated individual criminals, including hackers who have no connection to the organization that they are committing financial crime upon
Employees – The employees of an organization may commit financial crime
Business leaders – Executives or board of directors may commit financial crime
How to Protect Against Financial Crime Within an Organization
Financial crime is defined slightly differently depending on what jurisdictions an organization operates in. Understanding specific jurisdictional laws and learning which ones apply to a specific organization is therefore crucial. These financial crime laws must also be communicated across an organization so that there is broad awareness of them. The best ways to protect against financial crime include:
Use of shared intelligence – This includes sharing information and using financial activity and risk data linked to crime to prevent financial crime. It can be in the form of reporting suspicious activity and keeping records of transactions with complete transparency. Furthermore, collaboration with public entities such as law enforcement and regulatory bodies may enforce protection.
Prioritizing risk – This includes understanding the different levels of risk that an organization faces from financial crime.
Use of technology – This includes using innovative technologies such as data analytics and machine learning to predict potential vulnerabilities within an organization.
An actionable plan to reduce financial crime risk includes:
Creating a plan to counteract or mitigate risks
Implementing crime prevention systems
Stress-testing prevention systems regularly
Monitoring the effectiveness of systems
Overall, regulators, leaders, employees, and others must work together with data and technology to form viable protection from financial crime.
Benefits of Financial Crime Risk Management Tools to Security
Financial crime risk management systems are important in order to ensure that financial information is safe from cybercriminals. This has a direct financial benefit, as well as indirect benefits such as avoiding loss of reputation and customers. Tools for financial crime risk management such as risk analyst teams and risk management software can benefit security by:
Identifying suspicious behaviors
Preparing and organizing security alerts
Presenting potential threats and vulnerabilities through data to prevent future crimes
Thank you for reading CFI’s guide to Financial Crime Risk Management. To keep learning and developing your knowledge, we highly recommend the additional resources below:
Take your learning and productivity to the next level with our Premium Templates.
Upgrading to a paid membership gives you access to our extensive collection of plug-and-play Templates designed to power your performance—as well as CFI's full course catalog and accredited Certification Programs.
Already have a Self-Study or Full-Immersion membership? Log in
Access Exclusive Templates
Gain unlimited access to more than 250 productivity Templates, CFI's full course catalog and accredited Certification Programs, hundreds of resources, expert reviews and support, the chance to work with real-world finance and research tools, and more.