Here are five key predictions for the FI sector and fraud landscape in the next 10 months.

1. Expect tighter regulation to bolster fraud mitigation Our research indicates that at least 51% of organizations worldwide encountered fraud in the past two years. The Asia Pacific region’s growing number of online users and digital payment channels have given rise to a more complex fraud analysis environment.

   Scaling fraud detection to growing digital transaction volumes (39%) and identity verification (38 %) were among the top challenges faced by Asia Pacific FIs polled last year, according to our commissioned research. As FIs seek to expand their digital offerings, regulators are expected to further tighten fraud prevention and compliance policies. The findings show the most critical gap in fraud risk investigation lie in inadequate data standardization and governance (38%), and fragmented data with piecemeal systems and software (32%), pushing institutions to increasingly explore regulatory technology solutions.

   Government regulatory bodies are imposing hefty fines on FIs that fail to meet data protection regulations and anti-money laundering (AML) compliance requirements. Stringent supervision and penalties on FIs have resulted in increased monetary losses in the form of regulatory fines: the highest-ranking component of fraud loss by respondents was 41 %, compared to direct fraud losses (28%) experienced by FIs.

2. Digital risk and cybersecurity are starting to converge Rapid digitalization over the course of the pandemic sparked an uptick in self-service and online services. The focus has now shifted to central banks taking a proactive approach in policymaking and risk management strategy towards cybersecurity to combat digital fraud. Our data suggests that FIs in the past year had expected money laundering (69%) and malware (64%) to continually grow amid the escalating threat dynamics. This underlines the urgent need for institutions to address accelerating fraud risks and adopt stronger fraud prevention capabilities.

   The evolving risk dynamics forcing FIs to drive the adoption of advanced fraud analysis (including device fingerprinting, user behaviour analytics, and account identification verification), highlight the digital trust imperative that will shape the consumer trend landscape.

   As the impact of identity theft continues to grow in the region, FIs are ramping up security measures and prioritizing identity verification.

3. FIs will ramp up AI adoption in response to AI/ML tools exploitation AI is fueling the development of a more dynamic world, but fraudsters are also abusing these same technologies for ill gain as deepfakes, AI-supported hacking and password guessing, and impersonation techniques scale up.

   FIs are increasingly adopting ML capabilities to train models in recognizing the data correlation to a known fraud scenario, with 47% of FIs polled having already adopted ML tools, while 37% were beginning to use them.

   Advanced technologies have made fraud more accessible to cybercriminals, so validating the authenticity of communication is key to keeping up with sophisticated fraud techniques. Our own findings show strong ML adoption in Indonesia (71%) and Thailand (69%) and an uptick in the adoption of robotic analytics in Vietnam (67%), Singapore (63%) and Malaysia (62%) to address fraud prevention and increase false positives detection.

   As the volume of fraud continues to rise to new heights in 2023, near-real time decisioning through predictive analysis and a holistic view of end-to-end financial crime prevention will be crucial components of firms’ navigation of an increasingly complex fraud landscape.

4. Cloud adoption to increase to battle sophisticated fraud typologies As cloud strategy is split almost equitably between hybrid, private and public cloud, our research suggests that 69% of FIs preferred their fraud management solutions to be hosted by solution providers rather than on-premises (31%).

   Legacy architecture, silos of structured and unstructured data, and data governance, have accelerated the shift towards more agile, scalable and flexible cloud-based infrastructure as FIs upgrade legacy systems and invest in end-to-end financial crime prevention solutions.

   Mature banks will gear their technology investments towards real-time transaction monitoring, alternative data analysis, and ML capabilities to combat fraud. This year, they will be paying attention and beginning to leverage modern cloud technologies and taking a more structured, strategic approach with proactive multi-pronged data and technology initiatives to future-proof their organizations.

5. Expect major changes to cryptocurrency markets Phishing, routing attacks and account takeovers are posing potential threats on blockchain networks that form the underlying foundation of decentralized finance (DeFi) and the growth of cryptocurrencies (31%).

   The risk perimeter is expanding with the uptick in new technologies such as cloud, open banking, blockchain and cryptocurrencies. Cryptocurrencies are among the leading payment methods on the Dark Net, and regulators are watching closely to curb the use of cryptocurrencies in money laundering and criminal activities.

   Unfortunately, organizations across all sectors are at risk from cyberattacks; the rising sophistication of data breaches has highlighted the need for all to urgently take action to improve their data security practices. While cyberattacks are not new, they are increasing in frequency and in nature, which is changing the paradigm of data security.

   With financial crime risk higher than ever, FIs in 2023 will move beyond a traditional reactive approach and adopt stronger measures, such as robust identity verification and authentication tools, and real-time threat detection to proactively combat fraud.