The role of technology within an AML program is to provide information to support the judgments of compliance professionals. While AML applications should work in harmony to enhance a firm's overall surveillance program, most companies have implemented the technologies in piecemeal fashion, creating silos within the surveillance program.
This inefficiency can result in significant costs for firms as they continue to investigate and handle suspicious events after the same or similar events have been reviewed and cleared by compliance officers. And in the midst of the current financial crisis, reducing inefficiencies such as time spent investigating unproductive alerts is critical to survival. Although the recent trend has been for firms to implement vendor-developed systems with significantly improved functionality and competitive prices, they need to focus on end-to-end integration rather than improvements to the individual technology components in their AML programs. To avoid such inefficiencies, companies must conduct basic due diligence, such as obtaining vendor referrals, prior to making an investment.
Customary return on investment (ROI) calculations are difficult to apply to AML activities because the benefit of full compliance is the avoidance of costs (i.e., fines) and reputational damage. Moreover, there may even be executives in the organization who view AML activities as burdensome rather than beneficial. Three key steps can increase the value of any investment in AML technology:
1. Seek applications that leverage the value of the data being collected. Better integration among KYC, TM and CM applications (see related box) can strengthen the AML program by leveraging the knowledge gained through one application to improve the processing speed or effectiveness of another.
2. Utilize AML information to enhance customer-focused activities. AML data provides rich customer intelligence. Within any AML program, rigorous standards are in place to identify each client, along with the client's investment objectives, sources of wealth and expected future patterns of activity. Such client-specific information represents an untapped opportunity to identify customer needs and behaviors that could translate into additional revenues by introducing new offerings in a much more targeted way.
3. Link information relating to AML, credit, fraud and Office of Foreign Assets Control (OFAC) risks. In addition to enhancing an AML program, once the customer transaction data has been carefully prepared for AML surveillance purposes, firms need only modify their screening scenarios to examine it for other illicit activities.
3 Key AML Technologies
1. Know Your Customer (KYC) applications facilitate client acceptance and account opening. They help manage the collection of client information and expected account activity, the implementation of a firm's customer risk assessment and customer peer groupings, and the execution of enhanced due diligence procedures.
2. Transaction-monitoring (TM) applications examine large volumes of transactional data to identify potentially suspicious account or transaction activity. These tools create alerts based on transaction histories, geography, entities and user-defined relationships.
3. Case management (CM) applications serve as a workflow system to investigate alerts that the TM system generates. They also manage and document the approval process related to these alerts.