09:45 AM
Sonny Singh
Sonny Singh

Time for a Fresh Look at Anti-Money-Laundering Strategies

Recent world events reinforce the need for continued vigilance on the AML front.

As tensions throughout the world escalate, financial institutions can expect even greater regulatory scrutiny of their anti-money-laundering compliance programs. In turn, it will become even more challenging to strike a balance between corporate responsibility to address AML issues and concerns about the budget and resources required to fulfill regulatory mandates.

In this environment, financial services organizations are wise to take a fresh look at their AML systems with an eye toward expanding automation, improving performance, standardizing processes, and increasing transparency. Firms that invest wisely can create a compliance environment that meets immediate and future AML requirements and serves as a platform for improving overall governance and risk management.

New requirements for a new era
In the decade since the passage of the USA Patriot Act, regulators have become increasingly aggressive in their efforts to root out and stop money laundering. In addition to monitoring timeliness in reporting suspicious activity, regulators are looking more closely at the processes and systems institutions are using as part of their AML monitoring and compliance efforts, and how they are updated and maintained to reflect new requirements and changing modes of financial crime.

Within a few years of the USA Patriot Act’s enactment, virtually every Tier 1 and Tier 2 financial services institution had some type of AML system in place. While these first-generation solutions largely met organizations’ immediate compliance needs, circumstances have changed significantly since then.

The pressure to do more to stop money laundering continues to increase, and the job of AML monitoring and compliance has grown more complicated. Today’s large banks process hundreds of millions of transactions each day, and growth continues unchecked. At the same time, financial crime schemes grow ever more sophisticated.

Many AML solutions cannot scale as organizations and transaction loads have grown exponentially. As a result, firms have deployed multiple systems to support AML compliance across different lines of business. This approach adds significant direct technology costs, as well as IT management and analyst expenses, to already ballooning compliance budgets. Equally important, this siloed approach precludes the enterprise-wide visibility that has become essential as financial crime becomes more sophisticated.

Further, organizations are finding that transaction monitoring is no longer enough. They are looking to automate analysis of alerts in a way that can reduce false positives and, ultimately, cut analyst costs. In addition, firms must now defend the models and methodologies used in automating analysis, as well as across their broader AML compliance programs. Many legacy systems do little to support these emerging requirements.

Finally, regulators are requiring faster responses to their inquiries -- a challenge that grows as data expands exponentially. As such, organizations seek to optimize performance of their analytical environments just as they look to expand automation.

Progressive thinking
The industry is embarking on a second wave of AML solution investment to meet changing requirements. Financial services firms that invest wisely have the opportunity to gain a new level of transparency, insight, and automation, which can significantly reduce risk and compliance costs.

Considerations to keep in mind when planning for a next-generation AML environment include:

  • A focus on data quality, ensuring they can truly identify a single customer across all lines of business and integrate both internal and external data into the system. It is also important to integrate a wide range of data, including criminal records, white lists, and black lists, and not only identify customers on those lists but also determine when a customer might be transacting with an individual on a watch list.
  • Flexibility and scalability as the amount and types of data sources continue to multiply rapidly and compliance requirements increase.
  • Automated analytics to improve alert accuracy and reduce compliance costs. With regulators giving more scrutiny to the methodologies behind AML compliance programs, firms must also be equipped to defend the models they use to automate analysis. As such, firms seek solutions with models and algorithms that have proven themselves in the market.
  • Enhanced performance capabilities to reach objectives and answer service-level requirements, such as reporting a suspicious transaction within 30 days. Firms that deploy high-performing platforms also stand to optimize their overall IT investment. If an institution can process batches 20 or 30 percent faster, it can free capability for other tasks and optimize overall IT investment.
  • Portability -- supporting a “build once and deploy often” approach -- is important for AML solutions to consider as businesses enter new markets and lines of business.
  • A closed-loop process to answer regulators’ call for a focus on process standardization and improvement in AML compliance. Recent guidelines call for a strong BSA/AML audit function that ensures identified deficiencies are promptly addressed and corrected.
  • Potential to optimize investment -- solutions with a data foundation that can support multiple compliance and risk management objectives optimize investment, improve data quality, and expand transparency.

One organization embracing this approach is LPL Financial. The firm wanted to efficiently and effectively comply with the expanding regulatory requirements, respond quickly to the US Security Exchange Commission (SEC) and Financial Regulatory Authority (FINRA) queries, gain the ability to more quickly identify potential fraud and money laundering activities, and reduce IT complexity. To do so, LPL Financial upgraded and expanded its existing analytical applications to gain near-real-time enterprise-wide visibility into potential fraud and money laundering activities. The implementations also enabled the organization to standardize on a single platform and deploy a robust, flexible, and highly scalable solution to support increasingly stringent regulatory requirements, potentially saving the organization from requiring future IT investments. Additionally, LPL Financial consolidated case management, automated processes, and accelerated analysis and decisions -- facilitating compliance efforts.

As financial institutions continue the twofold AML compliance battle -- complying with requirements while keeping costs in check -- they require solutions that deliver a unified view, enable new levels of analytical automation and standardization, ensure scalability, and support closed-loop compliance.

Sonny Singh is Senior Vice President and General Manager of the Financial Services Global Business Unit at Oracle. His organization's responsibilities include sales, consulting, engineering, and support of Oracle products that focus on banking, insurance, and capital ... View Full Bio

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User Rank: Author
10/3/2014 | 10:17:26 AM
Thanks for the post, Sonny. Having real-time data analysis capabilities is definitely a huge key for better combatting fraud and having good AML capabiltiies, in addition to the benefits it provides in customer experience and other channels as well.
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