The Role Of Deterrence In Managing Financial Crime For FinTech

The open and engaging way in which FinTechs attract customers and their razor sharp focus on customer experience presents an exciting opportunity to build-in and enhance the concept of deterrence as an effective and efficient part of their financial crime risk management.

The act of deterrence has become a common sight on the streets of many european capital cities, where armed police now patrol in response to the terrorist threat. Their very presence is designed to inhibit the confidence of a terrorist to physically act or target the venue where they are present. The presence of the police officer is both a physical control but also creates a perception of security. This is similar to airport screening, where the signs on approach to the screening points are designed to increase the perceived pressure on those seeking to breach the screening process, before they even get to X-ray machine. How many of you now spend the time in the airport queue tapping your pockets checking that you have no metal present as you don't want to be delayed for a few minutes? Imagine the feeling of stress that an individual would be feeling if they actually were trying to by-pass the screening process. Not only does this deter some uncommitted actors, it also presents additional opportunities to detect the activity.

In financial crime risk management terms deterrence is often discussed in the context of controls, where they physically stop illicit actors gaining access to an account, and this is a critical component; however, a credible and efficient deterrence process can and should be applied well before your customers start to interact with a physical control. If you think about it in purely operational and monetary terms, reducing the attempts of illicit actors that come into contact with your physical controls by 10%, say, results in potentially 10% fewer KYC matches or anomalies that need to be reviewed at cost, a percentage fewer transaction monitoring alerts that need to be investigated, and a reduction in the chances of a potential regulatory breach.

If we refer back to our analogy of the armed police officer standing outside a museum - do you need to physically interact with the officer to know he means business? Generally the answer would be no - you get a perception that he is there to do a job. This same theory can be applied to the perception you build of your company's financial crime controls and your corporate position when it comes to managing and dealing with financial crime.

Criminals are equally vulnerable to human emotions and will avoid firms where they feel the risk reward is not balanced in their favour. In some cases, they won't even try and test or breach your actual controls - turning their attention on those services they feel are more vulnerable. As with the analogy of the armed police officer, perceived deterrence is not enough and must be backed up by sound protection, detection and disruption activities/controls but perceived deterrence can be a hugely powerful and have tangible benefits.

Application of this key concept does not mean that you need to have big scary signs (digital or physical) that turn-off your customers and impact customer experience, in fact quite the opposite. Intelligent and credible deterrence can be integrated seamlessly into the open and engaging way new financial services are interacting with their actual or prospective customers while also reinforcing the point that FinTech businesses take the protection of the their customers and corporate responsibility seriously. For example, engaging your customer and user base through considered content is not only an open and transparent way to communicate exciting progress but it also presents the opportunity to get a strong deterrence message into the public domain. That messaging is then front and centre when the illicit actors are researching and scoping opportunities. 

It goes without saying that you do not want to compromise the effectiveness of your actual controls by disclosing sensitive features such as specific KYC conditions or transaction monitoring methodology but this should not inhibit the use of the deterrence concept as part of an effective layered financial crime framework, where its use can maximise efficiency, improve operational performance and also positively reinforce your customer engagement and protection objectives.


The team at FINTRAIL work with FinTech and regulated businesses to implement intelligent and risk-focused financial crime controls. Please contact the team at FINTRAIL for further information.