New research from RedCompass Labs shows that major banks believe they are lagging behind criminals by about eight months in adapting to new financial crimes, with the largest institutions believing the gap is as wide as 23 months.

The research, Financial Crime Detection: What holds banks back?, is based on findings from a survey of 300 senior payments professionals at US banks, and highlights the worrying trend of banks in underestimating criminals. 

The survey revealed that banks’ resources are being stretched thin in trying to address a range of financial crimes, with newer threats becoming just as prominent as more established ones.

For example, ‘pig butchering’, a type of investment fraud where scammers lure victims into giving them money, usually through a fake cryptocurrency scheme, has become a significant concern, with 27% of banks prioritising these scams, on par with drug trafficking at 28%.

The research also revealed that proliferation financing (33%), drug trafficking (31%), and cybercrime (30%) are the three most difficult crimes for banks to detect, citing a poor understanding of the criminal networks involved.

Meanwhile, payment professionals believe that internal inefficiencies are holding banks back, with 27% blaming internal governance, 26% citing an overcomplicated process, and 24% saying updating fraud models is not a priority. 

The report reveals that while 82% of institutions agree criminals are adept at using the latest technologies, only 41% strongly agreed. In comparison, 94% of banks believe they themselves are highly skilled at leveraging modern technology, with nearly half (49%) strongly supporting this view.

However, with Nasdaq reporting $3.1 trillion (£2.3 trillion) in illegal transactions in 2023, and only 1% of these crimes resulting in prosecution, the report suggests banks may be wildly underestimating criminals’ capabilities.

The report notes that new technologies are making cybercrime much harder to detect and prevent, although the banks are attempting to close the gap. Respondents said the implementation of new technology (39%), streamlining internal processes (39%), and faster vendor support (38%) are the main ways banks can catch up with criminal networks.

Meanwhile, just under a third (31%) of banks believe AI will help detect financial crimes, while over half (57%) think criminals’ use of AI will make detection even harder. In fact, 16% of banks fear AI may render detection nearly impossible.

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“Banks, by their own admission, are 8 months behind the criminals. They know the criminals are good at using the latest technology, yet they rate themselves marginally better,” said Tom Hewson, CEO at RedCompass Labs.

“We have the technology, the open-source data, the dark web data, and the ability to understand who is transacting, whether through IP addresses or multiple personas. We have the flags, the AI, and the tools. We have the recipe to double or triple crime detection.”