Cutting the Cost of AML Compliance with Scalable and Automated AML Fraud Prevention Solutions

Featured article by Debbie Fletcher, Independent Technology Author

The costs to brokerages and banks associated with anti-money-laundering (AML) compliance are rapidly increasing, placing more urgency on the adoption of next-generation AML solutions which streamline, automate, and improve the effectiveness of AML workflows, especially those related to know your client (KYC) and customer due diligence (CDD).

As we’ll see below, the current trend of rising compliance costs is simply unsustainable. Luckily, end-to-end fraud prevention solutions provide the necessary real-time data analytics and dashboard features the financial industry needs to bend the curve.

Compliance costs are on the rise

Financial companies have been spending a lot of their own money on AML compliance. According to a report by Accenture,AML compliance-related expenditures grew over 50% from 2012 to 2014. More recent data shows this trend hasn’t ended. The Asia Securities Industry and Financial Markets Association found that the average number of employees tasked with KYC compliance in financial firms during 2017 was 307. Just for some perspective, in 2016 that number was only 68.

Last year, the banking giant HSBC spent $3 billion on compliance, with much of it going to increased compliance-related headcount: namely HSBC’s 8,600 compliance staff. From 2013 to 2017 it had to triple the number of employees allocated to compliance, echoing the rates seen in Asia mentioned above.

Why this is happening

The primary driver of these surging compliance costs is the rollout of increasingly stringent regulations (e.g. KYC, CDD, and transaction monitoring) and little time to implement them. This results in a mad dash to stay on the right side of the regulators.

Of course, it would help if the regulators themselves were all on the same page. Many of these new regulations are effectively global in scope, but there aren’t always consistent standards across jurisdictions, thus forcing financial companies to satisfy a myriad of national and regional rules. Forget mad dash, a more apt metaphor is an American Ninja Warrior-style obstacle course…inside of an escape room.

Yet another cause of these rising compliance costs is the lack of a concomitant rise in automation, which has resulted in the increasing headcounts seen in the data above. Whichever AML tasks can’t be automated must be done manually, which leads to the fourth principal cause of the AML compliance cost crisis: compliance labor costs.

Good analysts are expensive. Aside from the obvious costs of wages, benefits, and training there are the indirect costs of office space, computer equipment, software licenses, etc. AML analysis requires specialized skills, and together with the fact that increasing compliance headcount is an industry-wide problem which generates strong demand, this results in high wages for each compliance employee hired.

Good KYC and CDD review is also expensive. There are often multiple tools to use, data from many siloed systems needs to be manually cross-checked, and a great deal of financial sleuthing is required to spot account connections which may indicate possible financial crime. This review is also time consuming, and that leads to customer friction and frustration during onboarding, resulting in lost customers and revenue.

Finally, there’s the cost of non-compliance. Exhibit A: the Commonwealth Bank of Australia was recently fined half a billion dollars for violating terror financing and money laundering laws.

Today’s fraud prevention solution must-haves

In its 2015 report, Accenture identified two key ways financial institutions can drastically decrease compliance costs:

– Use a real-time AML compliance dashboard. Condense all the data streams into a single pane of glass for data visualization and reporting, both of which lead to actionable insights, anomaly discovery, and the understanding of trends in both legitimate and fraudulent financial activity. Such dashboards can be powerful tools for senior management as well as analysts, as the former must have accurate and complete information upon which to make critical decisions.

– Leverage data analytics. Real-time visualization on the dashboard requires real-time analytics to monitor and analyze the streams of data coming in from many sources and systems. Such analytics must include built-in tools for improving and validating the models and thresholds used generating the alerts seen on the dashboard.

Effectively utilizing and combining these two tools will lead to more substantive and actionable alerts which are thus more likely to result in Suspicious Activity Reports (SARs), rather than a sea of false positives for human analysts to sift through.

Achieving cost-effective AML compliance

Such solutions feature centralization of AML processes, a must-have since regulators today demand consistent control across the entire organization and across geographical regions. Coupled with enterprise-wide watch list management and screening across jurisdictions and business units, platforms such that offered by NICE Actimize’s reduce the risk of running afoul of regulators in any region.

These comprehensive solutions also include large analytics libraries and boast low false positive rates, allowing improved productivity and streamlined investigations through reduced analyst time investment. This allows financial firms to meet the same compliance workload with less compliance headcount.

AML solutions in this group also include model risk management that not only verify and validate the performance and soundness of the models used to detect financial crime, but also to provide recommendations for improvement and flag possible limitations.

With the advent of scalable and automated AML fraud prevention solutions, financial companies meet the multi-faceted regulatory landscape of the future with tools available today – and do so without hemorrhaging money in compliance-related costs in the process.