State of Financial Crime 2023 Report
The term advisory is misleading. Compliance is about going beyond the minimum standard, so for a company to ignore guidance from an advisory body is misguided at best.
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If you disagree just imagine the following scenario. Your local regulator audits a competitors’ accounts and the competitor shows off how they not only meet the standard but also go above and beyond in several other ways to reduce SARs and decrease the likelihood of AML activity. When the regulator audits you and they question what you’re doing you’ll inevitably be compared to competitors.
Whoever goes above and beyond seizes the playing field. They’re the ones who the regulators will be looking to for where the industry should go next in regards to regulatory requirements. If you don’t get ahead of the competition they’ll be the ones dictating where you have to focus in the future.
With that in mind, FATF recently issued a great deal of advisory guidance; Automated Transaction Monitoring is now considered an essential facet of any useful AML system. The days of relying on a plethora of experts manually checking and processing information are coming to an end. Automation has become the practical way to carry out Transaction Monitoring at scale. Manual processes may work in limited area tests but to take your company to truly competitive levels automation is a necessity.
Incumbent financial service providers have known this for a long time but instead doubled down on the number of compliance personnel they have. Unfortunately, there’s complacency inherent in having so many compliance officers. And some in the industry think that this is enough to cover their regulatory compliance gap – it’s not. They’re faced with the classic technology problem of customers not knowing what’s needed to solve their issue it’s Ford’s faster horses.
For a long time, the industry couldn’t see beyond what was right in front of it, companies were unable to recognize what they needed. An understandable issue, especially given the slate of regulations that came down after the financial crisis. But when breathing room was achieved there was no return to strategy. More aggressive profit-driving areas were considered, branches were closed to save on costs. Compliance was a tickbox exercise, something rubberstamped for approval and left to grow.
Until the belt started to tighten again, not as much money was being made and compliance teams had to be shrunk. They started to cost a little too much. And that was the cycle compliance teams found themselves trapped in. Boom and bust right along with everything else in the financial world.
But compliance can’t break, or rather, when it does break it causes significant damage to a company. Both reputational and in terms of the bottom-line. So at last strategy must be considered. Companies have a choice between building internal systems or buying from a vendor (that’s a whole issue of its own) but either way, it has to include an automated system of Transaction Monitoring.
Beyond the issue of a legion of officers with the same experience level, there’s an issue of consistency and fatigue. Human compliance officers cannot function at peak efficiency for long. They miss things. And that’s just a cursory problem in the grand scheme of things. They also lack the scalability and sustainability necessary to keep up with the global economy.
Deutsche felt this issue sink its teeth into their capabilities recently. The bank had an internal resource gap that meant it couldn’t handle the transactional load with the compliance officers on the payroll. That’s why Deutsche altered the scope of its screening to match what it could handle.
Automation could have helped the embattled bank; freeing up time for compliance officers by handling the dull tasks, streamlining information for a holistic understanding of entities and having alerts flagged appropriately. All of which would have reduced the anathema of all compliance departments – a high rate of false positives.
Automated Transaction Monitoring isn’t something to consider for the future, it’s the present. Without it, there’s no survival for any financial company, you’re just running out the clock. Manual methods cannot scale, they cannot adapt and they cannot sustain. To quote FATF’s guidance for a risk-based approach on Virtual Assets and Virtual Asset Service Providers ‘automated systems may be the only realistic method of monitoring transactions’.
It’s not just about reducing false positives, saving on costs, protecting your reputation and getting to set the agenda on compliance standards. It’s about making sure your business can thrive in a regulatory environment that’s set to get even tougher.
Learn more about Automated Transaction Monitoring here
Originally published July 15, 2019, updated March 25, 2022
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