Know Your Transaction: Is there such a thing as too much information?

In an era of complex global transactions and stringent compliance measures, the question of how much information is too much arises.

By Jialing Chia, MonetaGo, and published by Trade Finance Global

The information dilemma: too much or too little?

Financiers would prefer a world where compliance checks result in a binary decision: a clear ‘HIT’ or ‘PASS’. But the reality is far murkier. Most cases fall in the grey area, where institutions face an overabundance of information with no clear actionable insight. Risk lies in this in-between area, where regulatory breaches or fraud can slip through the cracks unnoticed.

One of the most notable trade finance fraud cases in recent years involved Hin Leong Trading, a Singapore-based oil trading firm. In 2020, it was revealed that the company had falsified documents for years to secure more than $3 billion in financing. The fraud went undetected because the company submitted multiple trade finance documents, including invoices and letters of credit, that were difficult for individual banks to verify. By the time the fraud unravelled, it was too late— banks had already extended credit based on these falsified documents.

The collapse of Hin Leong serves as a stark reminder of the risks inherent in trade finance, where complex documentation and fragmented information can conceal fraudulent activity. In 2024, the International Maritime Bureau (IMB) reports indicated an 11.4% rise in suspicious trade documents often used to manipulate shipping and financing transactions, underscoring the importance of data verification and sharing between financial institutions.

Fraud doesn’t necessarily occur in bad times – rather, it is revealed when conditions worsen, exposing the cracks that had long been concealed. Much like the Hin Leong case, fraud schemes thrive on a lack of proactive analysis and the inability to make sense of excessive or poorly prioritised data.

Unlocking the power of data: The right information at the right time

Data today is both an asset and a liability. On one hand, data is tightly protected due to privacy regulations like the European Union’s General Data Protection Regulation (GDPR) and other local laws. On the other hand, the potential of data to detect fraud or non-compliance is immense when shared responsibly.

Technology has dramatically improved our ability to share data securely, thanks to advancements in encryption, blockchain, and secure data exchanges. Organisations like SWIFT are piloting new initiatives to securely share trade finance data across borders without compromising privacy. But it’s not just about sharing; it’s about transforming data into actionable insights. 

While artificial intelligence (AI) and machine learning tools have advanced exponentially, they rely on vast amounts of data to function optimally. However, data is restricted, often siloed within organisations or countries, limiting the capabilities of even the most sophisticated systems. Large language models (LLMs) require access to diverse datasets to identify patterns of fraud or compliance breaches effectively.

Yet, despite this technological leap, the “human-in-the-loop” element remains indispensable. Technology can process and analyse vast datasets faster than any human ever could, but humans are still needed to make the final call in ambiguous cases. Experts are required to add context, interpret anomalies, and, ultimately, make informed decisions.

These models need data to thrive, which is paramount to improving accuracy in human analysis. Facilitating access to data proactively is a necessity, to train these models extensively to reach their full potential.

Informed decision-making: managing risks with technology and humans

There can never be too much information—there can only be too little understanding. Informed decision-making requires the ability to sift through the excess to extract meaningful insights. Institutions that fail to leverage the full scope of available data leave themselves vulnerable. So, what’s preventing them?

Process avoidance and change management aversion are major barriers. Many companies avoid adopting new technological solutions because the transition seems daunting or disruptive to existing workflows.

Criminals, meanwhile, are constantly seeking new ways to defraud the system, often embracing the very technologies that institutions are slow to adopt due to regulatory or operational restrictions. This imbalance creates vulnerabilities within the financial system.

Take, for instance, the financial services industry, where compliance costs are soaring. According to a LexisNexis report, compliance costs for financial firms in 2023 are expected to exceed $200 billion globally. Yet, the cost of not adopting innovative solutions—whether due to process avoidance or resistance to change—could be far higher in terms of fraud, sanctions, or penalties.

Balancing data security and information sharing

Data security is non-negotiable. But in a world where fraudsters are increasingly sophisticated, data must be shared to identify and prevent fraudulent behaviour. The UK Financial Conduct Authority (FCA) 2023’s update on their Fraud Strategy showed a 40% decrease in overall losses to fraud in the UK compared to the previous year. A key strategy in combating fraud is focusing on prevention. To minimise the risk of harm, industry partners must collaborate to strengthen the overall system and reduce vulnerabilities. 

The challenge lies in sharing data without breaching security protocols, and this is where technology comes in. With technologies like hashing and confidential computing, data can be shared and analysed without ever revealing sensitive information. Companies like Google and Microsoft are investing heavily in these technologies to ensure that organisations can collaborate securely.

As compliance and fraud prevention evolve, the need for more data—and more effective use of data—will only grow. The future lies in striking the right balance: between too much information and too little understanding, between cutting-edge technology and the indispensable human touch, and between protecting data and sharing it wisely.

In the end, there is no such thing as too much information—there is only feigning ignorance of the insights it can offer. Institutions that embrace technology and human expertise, and that manage change effectively, will be best positioned to navigate the increasingly complex compliance and fraud landscape.