Though financial crime has always been a key concern for banks, the environment in which the world’s most notorious criminals are operating is very different from that of yesteryear. For sure, money laundering, terrorist financing, embezzlement, identity theft, and other forms of financial crime still run rife. But these are now happening on a much larger scale than before, and criminal networks no longer limit themselves to the resources of big banks.
It’s not unprecedented for these crooks to target small and mid-sized banks, and then take advantage of the latter’s weak infrastructure for detecting and mitigating financial crime.
If you worry about your own bank’s anti-financial crime program, it’s with good reason. The biggest mistake that any bank’s leadership can make is assuming that their organization will be safe from criminals’ plans.
But with that in mind, it’s high time for you to redesign your current anti-financial crime program to be more responsive to imminent threats. The goal should be to fortify your transaction monitoring system, to have good working protocols for know your customer (KYC) and customer due diligence (CDD), and to improve the quality of your anti-money laundering (AML) investigations.
To get you started, here’s a step-by-step guide on implementing an anti-financial crime program that gets smarter over time. Give your organization a fighting chance against the criminals of today, bolster your standing with regulators, and forge an identity as a banking brand your legitimate customers can trust.
Understand the Changing Nature of Financial Crime
Before all else, bank executives and their AML compliance teams must come to an understanding of just how grave the threat is. Money launderers and other malicious agents are constantly upping their game, as that’s the only way their illicit schemes will live on. The stress and uncertainty brought about by the COVID-19 pandemic, as well as banks’ growing pains in shifting to digital operations, may also be cause for celebration for them. These perpetrators may know that banks’ traditional AML systems are currently overwhelmed, and may therefore find it the perfect time to strike.
Thus, the first step is for your bank to acknowledge the gravity of the situation. Your anti-financial crime program must hinge on a commitment to stay ahead of the crooks and to safeguard your resources more aggressively than before.
Make Room for Planning
As discussed above, the changing nature of financial crime makes it quite obvious that banks have to update their current plans of action. But implementing a new anti-financial crime strategy isn’t something that can easily be done overnight. Banks need to do a lot of preparation work before the execution of any new rules, technologies, and deadlines pertaining to the program. This protects the organization from a severe culture shock or business interruption due to the redesign of its systems.
Here are some important planning steps that your bank will need to take before rolling out a new anti-financial crime program.
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First, bridge any existing knowledge gaps among compliance officers, IT staff, and other stakeholders. All of you must come to a common understanding of what AML compliance is supposed to entail and what new goals you want to meet in your program.
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Second, determine any outstanding issues in data quality and data management. Discuss the possibility of using artificial intelligence and machine learning (AI/ML) or other technologies so that you can improve in these areas.
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Third, look at what needs to be operationalized in your anti-financial crime program. List down the need for specific methodologies for conducting investigations, schedules for compliance reporting, opportunities for training in AML compliance, and the like.
Upgrade Your Tech Stack
Soon, it will become apparent that your current repertoire for transaction monitoring, KYC, and CDD technologies is not enough. The sooner that you can invest in newer technologies that make you more adept at AML compliance, the better your bank will be at mitigating the risks associated with financial crime.
Determine which tools you’ll need in order to onboard a tech solution of the proper scale; then, enlist the services of a trustworthy tech implementation partner. When onboarded, your new tech stack should do more than increase your speed at sifting through large volumes of data. It should also streamline your data handling processes and improve your compliance team’s data analytics capabilities.
Adopt a Pattern-Based Approach to Detecting Fraud and Money Laundering
Your revamp of your anti-financial crime program shouldn’t stop at the acquisition of new tools. This is the perfect time to reorient your AML strategy and go beyond tagging individual transactions, then identifying whether they’re false positives or not. Your anti-financial crime program should apply pattern-based thinking, or detecting threats of financial crime from patterns manifested in customer behavior.
In a pattern-based AML compliance model, context is key. Your team should have a “bigger-picture” view of the bank’s transactions, and it should be on the lookout for relationships between webs or clusters of customer behavior. Methods like graph analytics will be able to illustrate how certain bits of information, like customer names or transaction amounts, might be connected to more sinister activities. This approach will help you gauge the presence of criminal activity much more effectively than case-to-case analysis, and it may buy you a critical amount of time to nip any impending threats in the bud.
Optimize Your AML Compliance Outputs and Strive for Quality Investigations
The last step for rolling out a new anti-financial crime program is to operationalize audits. Monitor your new systems and protocols constantly to see if they are actually resulting in improvements to your outputs. If your compliance team sees constant improvements, that means that the efforts to revamp the program were not in vain.
Don’t be afraid to gradually heighten your standards for AML investigations after your team has acclimatized to the new program. Eventually, you can work on becoming a leader in the field of AML compliance and gain the valuable respect of your regulators, as well as your peers in the industry.
In the process of redesigning your anti-financial crime program, you may be anxious about the various unknowns that could come into the equation. But remember that no institution has the ability to see into the future. What you do have control over, however, is your institution’s level of foresight and preparedness to deal with intensifying financial crime. Do the work of revamping your anti-financial crime strategy today, and enjoy safety, security, and stability for your bank tomorrow!
