How to choose the right technology for your AML program

Regulators continue to tighten compliance requirements and FIs are responding to this predicament in all manner of ways. But financial fraud remains widely prevalent, thwarting equity, freedom and rule of law across the world. Between 2017 and 2018, fraud was the 4th biggest operational risk for organizations, according to a survey of risk officers.

Many banks adapt an ERP solution as the be-all-end-all of AML compliance. In reality, these solutions have thus far been little more than add-ons, or dressing on a deep wound. By design, there are inherent contradictions in their utility, in the current regulatory and tech climates. Although they may hold the status of “industry standard” (read least common denominator), they leave many gaping holes and shortfalls in the organization’s regulatory compliance and business capabilities. The AML services, processes and workflows these ERPs offer are neither efficient nor optimal.

For example, only 0.5% of all transactions reviewed by compliance professionals end in a criminal investigation. False positives, with an average rate above 95%, are the single biggest headache for banks of all sizes, as they need to allocate significant resources to review these cases manually, and close them out. It looks a lot like a lose-lose situation. Banks can incur sizeable savings just by lowering this number.

So, where does the answer to our million dollar question lie? How do you fight financial crime and win?

Choose technology that meets risk

The threat landscape has evolved with professional launderers and high-end technology. And regulators, having taken sight of this, recommend a proactive risk-based approach to AML compliance. One that requires FIs to assess specific offerings, business processes, customers, and geographies that are relevant to their case to build appropriate AML services.

A one size fits all packaged software solution cannot deliver this effectively, even if it allows certain customizations. Adding more manual power to work around the system is hardly efficient and requires additional resources.

Tech decisions should instead be based on the organization’s business architecture, desired outcomes, and unique risk profile.Thinking along this line forces one to look deeper into organizational structures and workflows and address core problems without merely hiding pitfalls with software. By building compliance into BAU, FIs can thus ensure that business processes are integrated with technology, and both are tailored to meet expectations.

The final word

With the explosion of AI, machine learning, graph analytics, network mapping, and more, there is no longer, and probably never was, a template answer to our big AML question. Winning the battle requires a narrow, intelligent, risk focused approach.

FIs should leverage regulatory directives as drives for technology transformation by identifying opportunities to improve existing business processes. With this foundation in place, FIs can take the first steps towards a positive AML culture that balances risks and rewards.

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