Fraud Data Consortium

When it comes to fighting fraud and other types of crime, financial institutions typically start at a disadvantage. They are bound by numerous regulations regarding where and how they operate, including what information they disclose and who they disclose it to.

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Financial criminals don’t follow these rules; they work wherever and however they need to in order to keep their illegal operations running. And that often includes cooperating with each other across jurisdictions and international borders.

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FIs are beginning to realize that in order to keep up with financial criminals, they need to do the same thing: work together. That’s why some have joined data-sharing consortiums. But what is a consortium in the context of anti-fraud and AML? And what advantages does it offer for FIs that join it? We’ll explain below.

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A fraud consortium is a group of financial institutions and service providers that decide to work together to better understand and combat fraud. By pooling resources, the consortium is able to identify known fraud perpetrators and techniques, as well as develop better anti-fraud practices.

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One reliable way for a consortium to work as a collaborative approach between members with equal rights could be in the form of DAOs. These are collectives that have no central authority; rather, each member of a collective is responsible for its upkeep, management, and decision-making.

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Data Consortiums for Fraud and AML Compliance

A fraud or AML consortium is basically a type of data consortium. That is, it’s a group that gets together and shares data for mutual benefit. In the case at hand, the data happens to be about financial crime and AML/CFT/CPF regulations.

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The idea behind such a group is that a financial institution or money services business has an easier time solving crime problems (such as fraud), and dealing with issues such as regulation compliance, in a group as opposed to on its own. It gets more information to work with, information that it didn’t have to spend its own resources researching. And it gets to learn from how other FIs and MSBs are fighting crime and complying with regulations—issues that affect all businesses in the financial industry—in order to better formulate best practices for both.

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Being part of an anti-fraud data consortium can give a financial institution’s risk management team several advantages. Here are some types of shared consortium data that anti-fraud/AML teams can find useful:

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• Case management resolution: Consortium members can swap case studies of how they responded to particular suspicious activity alerts and financial crime incidents. They can share information such as how their fraud detection systems were set up, how the anti-fraud team reacted, what an investigation uncovered, and overall what went right or wrong. FIs can use these cases to develop best practices for handling incidents.
• Perpetrator IDs: Financial criminals often defraud more than just one financial institution. The silver lining to this is that it leaves a trail of activity, one that FIs can more easily see the patterns in if they share data. This allows them to flag certain identity elements such as names, addresses, locations, device fingerprints, other account identifiers, and so on as inherently risky. In doing so, they’re able to proactively prevent repeat financial criminals rather than reacting to each incident as it happens.
• Fraud trends: FIs in a consortium can share data on how often they’ve encountered attempts of different types of fraud over a period of time. This allows members to calibrate their anti-fraud systems to be ready for the forms of fraud that are commonly being attempted at present.
• Regulatory changes: Laws regulating national and international financial systems change on a fairly consistent basis. Working in a consortium helps FIs keep each other abreast of any additions or revisions to these laws, so they can quickly modify their anti-fraud/AML systems in order to remain compliant. Even if certain regulations apply only to specific countries, members of an international compliance consortium can see what anti-fraud/AML initiatives are priorities in other jurisdictions. This may be useful to know when dealing with clients from those jurisdictions.

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The bottom line is that FIs in a consortium can collectively research anti-fraud and AML information, forgoing the need for individual FIs to spend extra resources to redundantly conduct this research on their own. This allows for tighter standardization of anti-crime procedures and regulatory compliance; faster deployment of effective anti-fraud/AML systems; and a greater focus on preventing financial crime rather than reacting to its aftermath.

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Join Unit21’s Fraud DAO to Aid Our Anti-Fraud Efforts

Unit21 is proud to be one of the leaders in fighting financial crime through an operational risk consortium. Our Fraud DAO is a decentralized network that’s free to join. The only cost is sharing transaction data, which will be aggregated and de-identified to preserve privacy, and will always still belong to your organization.

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If you’re interested in learning more, contact our team.

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