- By Andrew Davies, VP, Global Market Strategy, Financial Crime Risk Management, Fiserv
This summer saw the introduction of the fourth EU Directive on Money Laundering into the European market, which outlined stricter compliance regulations for Financial Institutions (FIs). This meant that in order to tackle money laundering activities, FIs must work harder and carry out more due diligence on their customers, closely observing transactions for any suspicious activities.
With customer relationships and transaction flows becoming more global, it’s vital that FIs understand customer behaviour and financial activity patterns in minute detail in order to detect genuine instances of money laundering verses what is normal customer behaviour. However, more data can create information overload.
Many institutions today struggle with too many Anti-Money Laundering (AML) alerts. Implementing prevention strategies that harvest the correct data will allow them to avoid information overload and provide them with meaningful alerts of genuine criminal activity.
Mind the gap
Having the right AML prevention solution is key to reducing and managing financial crime risk. By pulling together full customer profiles through effective Customer Due Diligence (CDD) and Transaction Monitoring, unusual behaviour that is indicative of money laundering, tax evasion, human trafficking and instances of fraud can be identified early and more accurately.
If an organisation does not know and understand their customer fully, it is impossible to understand the risk associated with them. There is typically a knowledge gap within organisations across the industry where they do not have a full picture of each customer’s behaviour patterns when it comes to their financial activity. Data collected from within an organisation and from industry groups can provide FIs with customer-centric profiles, enabling them to better identify what might be crime and what is normal activity for the customer.
If customer data, both static and dynamic, is managed correctly through the collaboration of CDD and transaction monitoring, FIs can build up a comprehensive profile of their customers. This provides organisations with greater accuracy in uncovering activity that is truly worthy of further investigation. Combining what FIs know from a CDD perspective, with what we see from a transaction monitoring perspective, empowers them to make better decisions and to generate more precise anti-money laundering alerts. Each alert has to be investigated, therefore more accurate detection also means greater operational efficiency.
The role of technology
The way that customers interact with FIs and manage their money is constantly changing. Therefore, it is crucial that FIs understand every aspect of customer behaviour regardless of what channel or device the customer chooses to use.
Technology that automatically collects and analyses Know Your Customer (KYC) data enables companies to gather information and evaluate it through a scorecard system to quantify the anti-money laundering risk associated with each customer. These checks typically happen as companies are on-boarding customers to identify straight away if they should continue to on-board or if they are flagged as high risk. However, it is also important to continue to carry out due diligence on customers and look for any unusual activity throughout their time as a customer to ensure that they are still deemed to be low-risk.
Unusual activities are detected by looking for standard anti-money laundering scenarios and red flags; however the use of big data and analytics is important too. Technology can compare customer behaviour relative to other customers and leverage best practices to accurately detect money laundering activities, while helping to ensure legitimate customers are not inconvenienced.
Timing is everything
When money laundering behaviour is recognised early, the FI has time to prevent it and consequently reduce any losses. Through monitoring activity across any account, in any country, it is easier to identify something which looks suspicious or out of the norm.
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A common infrastructure that displays customer-level risk data at an FI level enables institutions to pinpoint and tackle increasingly sophisticated criminal activity. This allows legitimate customers to continue to enjoy their banking experience without disruption. It also means that alerts are more accurate and investigations team are spending their time on actual cases of money laundering. By progressively renovating systems, KYC data will stay up-to-date, flexible and constantly in action. This constantly evolving implementation approach acknowledges the necessity for converged data to make sure that organisations fully understand the customer and can manage financial crime across all channels.
The combination of CDD and transaction monitoring creates a more accurate view of customers and their behaviours. Being able to understand customers more comprehensively through the use of data means that organisations can identify and flag unusual behaviour no matter where they are based in the world, resulting in money laundering activity being detected more quickly, and more accurately. In addition, it means that when anti-money laundering teams are alerted to financial crime they know that it is genuine and can act quickly. This ensures reduced losses for an organisation and that legitimate customers receive the best experience possible without disruption, ultimately protecting an organisations reputation.