Technology has taken over the financial ecosystem. Banks, non-banking financial companies (NBFCs), and other financial institutes are upgrading their existing infrastructure by deploying advanced technologies to combat suspicious financial activities, prevent crime, and ensure regulatory compliance.
The Finance Ministry revealed that the Financial Intelligence Unit–India has identified an undisclosed income of around a whopping ₹11,000 crore in 2024.
Technology and data analysis advancements allow authorities and regulators to money trail detection and uncover complex money laundering schemes, tax evasion, drug trafficking, and terrorist financing activities.
This article highlights technology’s role in tracking financial trails and preventing fraudulent and suspicious financial activities.
Growing Need to Leverage Technology to Identify Money Trails
It is no secret that the financial ecosystem has evolved rapidly and become increasingly complex as the number of domestic and cross-border financial transactions continues to grow.
The rapid growth within the financial ecosystem has paved the way for illicit financial activities mentioned earlier and traditional techniques often fall short in addressing these barriers.
This is where technology enters the fray. Here’s how:
Improve Regulatory Compliance
Regulatory bodies, including the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI), and the Financial Intelligence Unit–India (FIU) continue to impose stringent compliance requirements on financial institutions.
These measures come at the back of rising UPI and other financial transactions.
The National Payments Corporation of India (NPCI) disclosed that the number of UPI transactions in April 2024 surpassed ₹1,330 crore, a 50% rise from 2023.
Banks and NBFCs can integrate technology to automate compliance processes and monitor irregular and suspicious activities, ensuring adherence to Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) regulations.
Enhance Cross-border Transaction Monitoring
The effect of globalisation has transcended into the financial space, increasing the number of cross-border transactions.
Therefore, it is crucial to encourage transparency and ensure that financial transactions are secure, easily traceable, and compliant with international regulations to prevent misuse and build trust among all the stakeholders in the value chain.
Tackle the Rise of Digital Fraud
The rise of online payment platforms, such as Google Pay, PhonePe, and BharatPe, has given fraudsters fertile ground for exploiting users.
As a result, phishing scams, cyberattacks, and other fraudulent transactions are increasing, increasing the need for robust fraud detection processes powered by cutting-edge technology that rely on behavioural analytics and real-time alerts to mitigate losses.
Creating a Transparent Financial Future
Money trail detection using technology not only offers the ability to prevent financial crimes but also builds a trustworthy and safer financial environment.
As criminals become equipped with the technical know-how of how existing and developing technologies work, financial institutions need to upgrade their existing tech stack to safeguard their reputation and contribute to a transparent global economy.
Leveraging Technology for Effective Money Trail Detection
Now, let’s explore how we can leverage technology for effective money trail detection and overcome the aforementioned challenges:
1. Blockchain Technology for Cross-border Payments
Blockchain technology offers a transparent, immutable ledger that can efficiently track and verify cross-border transactions. It also creates a solid foundation for secure and tamper-proof record-keeping, minimising the risk of financial tampering and fraud.
Further, blockchain technology also allows real-time tracking of international payments and settlements.
2. Artificial Intelligence (AI) and Machine Learning (ML)
Artificial intelligence and machine learning algorithms can detect and analyse unusual financial transactions and foresee anomalies based on historical data. These cutting-edge technologies can also pinpoint fraudulent patterns in digital transactions by adapting to the developing fraud detection techniques that leverage historic and real-time data.
AI and ML can help financial institutions monitor user behaviour, including logic patterns, transaction habits, and other parameters, to detect anomalies.
3. Multi-factor Authentication (MFA) and Biometric Security
Multi-factor authentication and biometric security add an extra layer of security to all digital platforms, minimising the chances of unauthorised access.
This means that even if the first barrier, including one-time passwords (OTPs) and email codes, are breached, biometric scans and physical tokens offer an added layer of security, protecting sensitive data.
This layer of security is essential for remote users who must prove who they claim to be. Encrypting sensitive financial data during transmission protects against unauthorised access.
4. Update Regulatory Technology and Cybersecurity Solutions
Regulatory technology or RegTech is primarily responsible for automating compliance with the local and international financial and reporting regulations. The framework is designed to ensure financial institutions adhere to the AML and Know Your Customer (KYC) guidelines.
Further, financial institutions need to upgrade their cybersecurity solutions to safeguard their systems from ransomware, data breaches, and cyberattacks. This includes improved firewalls, fraud detection systems, and endpoint protection.
Parting Notes
Digital finance offers user benefits like improved experiences and control but also presents risks like fraud and non-compliance. Technologies such as AI, machine learning, blockchain, multi-factor authentication, and improved cybersecurity solutions are equipped to tackle these challenges, allowing financial institutions to predict and prevent emerging threats.
Advancements in technology are likely to shape the course of the financial ecosystem in the future, clearing the way for a secure, transparent, and trustworthy environment.
Precisa’s Anti-money Laundering (AML) analysis aids law enforcement agencies and financial institutions in detecting anomalies and investigating money trails. The tool, powered by statistical analysis and AML fraud risk checks, ensures accurate and comprehensive monitoring, allowing timely intervention to prevent financial crimes.
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