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Banks Are the First Line of Defense Against Money Laundering

Databases and modeling tools are among the systems helping banks analyze the data required to understand customers, monitor millions of transactions and identify suspicious behavior.

Q: What is the current state of AML regulations? Are there any new AML-related regulations on the horizon, and what are the IT implications?

Weber, Aite Group: There has been significant ramp-up of AML regulation over the past few years. Regulations that define customer identification and AML monitoring procedures are in place. But regulators continue to fine-tune, primarily through published guidance in response to evolving money-laundering risks. Given the dynamic nature of money laundering, banks must ensure they have the flexibility to adapt. Changes in standards and best practices are expected as money laundering threats are identified and explored. Having the right AML technology is a critical means of achieving this consistency and in executing AML procedures efficiently.

Pesce, KPMG: With numerous regulations governing the obligation of financial institutions to monitor and report suspicious activity, systems are key to a successful AML program that can assist with the customer data collection and use that information to risk rate customers and monitor transactions. Meanwhile, regulators -- in particular those from FinCEN -- have indicated that there will be a move toward a more risk-based system and toward better organizing requirements so that particular industries will have an easier time interpreting the regulations.

Epstein, Mantas: Local, regional and federal regulators are constantly learning from the examinations they conduct and trends within the industry. This leads to modifications of the AML regulations on a fairly regular basis. Evidence of this was recent changes to the USA Patriot Act around allowing for a risk-based approach to transactional surveillance and stricter guidelines around Section 326 (KYC).

Q: What are the key technologies banks are using to detect and prevent money laundering? What emerging technologies can help banks improve AML efforts?

Weber, Aite Group: There are too many moving pieces to the AML puzzle for it to be handled manually. Technology is clearly needed to analyze and manage the vast amounts of information that most institutions churn out daily. To support the broad goal of identifying and tracking situations with money laundering potential, vendor solutions typically provide list-checking and transaction-monitoring functions, case management, and reporting and audit capabilities. As they move toward second-generation solutions, most banks will be seeking out enhanced analytics and tools that provide an enterprisewide view.

Pesce, KPMG: Tools that effectively assist in risk analysis and transaction monitoring are key. Institutions must first understand what is normal for a customer and the risks associated with that customer before they can know whether activity is unusual/suspicious.

Epstein, Mantas: In an effort to continually meet AML regulations and control compliance costs, banks are looking for more-innovative ways to assess client risk, understand surveillance models and tune detection systems in order to drive up the quality of an alert while preventing false positives. This is playing out in many different ways within the context of technology. For example, banks are spending more time understanding the output and quality of their AML solutions (historical data); modeling and predicative analysis based on potential tuning changes are becoming increasingly important; and consolidating compliance solutions onto common platforms in order to achieve the benefits of better data/process reuse while lowering costs also has become an important objective.

Trivedi, PayQuik: Currently banks use a number of technical tools to detect and prevent money laundering. Among these are sophisticated database tools and lists that can detect if a name is among a list of banned entities or individuals, or is an individual that has a transaction pattern that is abnormal from what is expected of that individual. Emerging technologies that will increasingly play a part in helping banks improve their AML efforts include biometric identification, predictive modeling, and sharing of data at the national or geographic level to detect structuring across multiple banks.

Q: How can banks leverage their investments in AML solutions in other areas?

Weber, Aite Group: Over the past few years, AML solutions have matured. This is good, because banks' expectations for AML technology have been rising as well. Anti-money laundering solutions based on enterprisewide platforms are rich sources of all kinds of customer and operational data. Robust solutions not only help banks identify and mitigate various types of risk, they can also provide valuable insights into customer behavior and help identify marketing opportunities. As lines of business, C-level executives and IT work more closely with compliance departments, investments in technology will address both compliance and business strategies.

Pesce, KPMG: Banks can further leverage their investments in tools that analyze customer risk for AML by using those systems to house credit risk information as well. Certainly, AML tools can also be leveraged to detect fraud, and systems that process payments can house filters for scanning those payments against sanctions lists, such as those provided by OFAC or other data points.

Peggy Bresnick Kendler has been a writer for 30 years. She has worked as an editor, publicist and school district technology coordinator. During the past decade, Bresnick Kendler has worked for UBM TechWeb on special financialservices technology-centered ... View Full Bio

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