Compliance is expensive. Compliance failures can be even more costly — $13.4 billion in 2014 according to Booz Allen Hamilton. In its report on automation in anti-money laundering (AML) investigations, the consultancy notes that financial firms have been hiring rapidly, some increasing head count in their AML operations by 500 percent over a few years. The report found that AML analysts typically spent only 10 percent of their time on analysis. The bulk of their effort, 75 percent, goes into data collection and another 15 percent into data organization and entry. Clearly AML is ripe for automation — to reduce costs and to develop, retain and disperse consistent information to internal users and regulators.
When and How to Automate AML Processes
The best time for AML/KYC checks is when a customer is enrolled, or onboarded either online or in-person during the account opening process. This first touchpoint is crucial to the customer experience; they don’t want to go through a hassle, or spend a lot of time creating an account, which is why a frictionless experience is key to customer satisfaction. If the account is of a substantial nature they might accept a more involved process, but for a simple account a convoluted onboarding process can be a deal breaker. In any case, the smoother the identity process, the happier the client is.
The best way to mitigate risk is to detect and manage problematic accounts before they become a risk. Performing a comprehensive identity verification check reduces risk from fraud, risk of breaking compliance rules, and risk from dealing with dirty money. Once a bad customer passes the initial checks, they are past the gate and can start testing your fraud prevention systems.
Fraudsters are becoming more and more sophisticated. Money launderers and terrorists are identifying weak links in your AML/KYC processes to help them hide the true source of funds, and their connection to it. By blocking access to those that want to bypass your safeguards in the first place, your prevention systems will be more robust and secure.
“If not automated, #AML and #KYC checks can be a cumbersome, time-consuming task. “If not automated, AML/KYC checks can be a cumbersome, time-consuming task. The compliance officer, fraud manager, or bank staff will have to manually check ID, make and file records, ensure that the account holder is verifiable and that they are not an undue risk. Throwing more compliance personnel at onboarding new clients is not a scalable solution.
Ongoing Monitoring and Rescreening Customers
Every Financial Institution (FI) has the legal requirement, as part of their AML/KYC compliance program, to rescreen their customers on a regular basis based on their defined policies. Therefore, they need a process that allows the FI to re-verify its customers against current watchlists. Because it is a relatively simple and cost-effective way to remain compliant with minimal demand on internal staff, it is a useful maintenance procedure.
AML Screening: In-House vs Web-Based
AML regulations differ from country to country and may differ, in a global bank’s implementation, even for the same individual. An AML solution that is flexible, comprehensive, and provides user control over rules and thresholds, is crucial. The bank needs the ability to apply the most appropriate rules and adjust settings to avoid, or at least reduce, annoying false positives.
There are two camps on how best to provide AML screening:
- In-House, wherein the FI purchases a software and data subscription license. The FI runs the software on their system and is responsible for ensuring the data is current by continually monitoring the data subscription provider and then manually applying available updates.
- Web-Based solutions deliver AML watchlist data as a Service. The Software-as-a-Service (SaaS) provider takes care of keeping up to date with multiple data sources, and provides an AML screen based on real-time data.
Using a web-based service can speed up the integration process; many variables are already dealt with. The FI just needs to integrate with an API (Application Program Interface) once and they can then access global AML data on a per call basis. SaaS solutions can provide more stability; as they focus on delivering one core set of abilities, they use multiple servers thus avoiding the risk of a single point of failure.
And, SaaS solutions can simplify upgrades and new developments; the Service can take care of many issues on the backend, with the FI having to change little or nothing on their side.
Automation won’t eliminate the need for human evaluation and judgment, especially in investigations, but by assigning the data and rule processing to computers, automation streamlines the process, reduces regulatory risk and avoids unnecessary charges for people handling repetitive tasks that computers do better.
“AML/KYC requirements are continually growing the demands on compliance,” said Rob Hartley, VP of Product at Trulioo. “However, AML automation ensures that compliance can perform its due diligence, fraud prevention measures remain strong, and, at the same time, increasing capacity, productivity and operational efficiencies.”