Three regulatory questions shaping fraud in 2023

1. SBF and the future of crypto

FTX founder Sam Bankman-Fried, who is facing a slew of charges related to the collapse of his crypto exchange as well as potential electoral-finance violations, may be the defining bellwether for the crypto sector in 2023. The lenient or heavy-handed ruling SBF ultimately faces may have significant ripple effects mimicking those in the wake of FTX’s demise. Especially in a nascent sector defined by “lone genius” figures (Vitalik Buterin, Changpeng Zhao, among others), regulators’ willingness to target specific individuals may fundamentally reshape how influence flows within crypto—and potentially dissuade bad actors. 

However, the FTX fallout itself isn’t over. Depositors still have billions of dollars in crypto assets they can’t withdraw. Disillusioned and potentially bankrupt, consumers may be more wary of crypto endeavors moving forward, making for a smaller pool of potential fraud victims. 

2. The war in Ukraine

Although the war in Ukraine is currently at a relative standstill, with the front lines shifting much less frequently than they did in the opening months of the conflict, the war remains a compliance concern for financial institutions and payments giants. Russian state banks remain excluded from the SWIFT payments network, pressuring affected institutions to skirt around sanctions through alternative networks as well as intricate payments schemes. 

Payments networks like Payoneer, meanwhile, have had to rapidly scale Ukraine-specific compliance teams in order to remain OFAC-compliant, and flag fraudulent or illegal transactions in line with a matrix of regulations. To Micheal Sheehy, Chief Compliance Officer at Payoneer, mitigating fraud and solving for compliance in a conflict zone can have material benefits for people on the ground. “We're one of the only providers still making payments into the market and local currency, so we feel like we have an important role in keeping the economy going,” Sheehy told The Financial Revolutionist. 

3. Compliance automation

The expo hall at Money 20/20 in 2022 was filled with cybersecurity and compliance startups touting the benefits of AI- and ML-driven frameworks for fintechs and financial institutions. Tom Thimot, CEO of AuthID, said the company executed a phishing test at Money 20/20, which saw nearly half of targeted fraud and security professionals click on a fake phishing link. “Everybody’s susceptible to fishing,” Thimot concluded, including those who “should know better than anybody else.”

With that lesson learned, this year may see more medium-sized banks and fintechs move toward more automated compliance operations. But how they complete that transition will have significant implications for consumers and the bad actors targeting them. Fintechs and banks will have to scale these new processes thoughtfully, ensuring that lapses are patched over before the flood gates open.