Anti-Fraud and Anti-Money Laundering in Banking- The Common Denominators

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Anti-Fraud and Anti-Money Laundering in Banking- The Common Denominators

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Bank fraud and money laundering are on the rise

all across the world. Some top banking firms have

lost over several billion dollars last year, owing to

high-profile money laundering cases. In spite of

this sudden surge, a third of executives think that

their transaction monitoring systems are neither

efficient nor effective, according to a recent

survey from KPMG. With such large money at

stake, banks are striving hard to establish a

counter-mechanism to stop money laundering.

We too have been hearing from multiple banks on

their plans to align the anti-fraud and anti-money

laundering efforts within their organizations. Over

the past few years we have seen many

manifestations of sophisticated fraudsters and

money launderers across the globe that is making

bankers re-think their strategy and execution to

curb these attempts. Clearly fraud and money

laundering risks are the key containment areas for

operational risk management within a bank.

Their implications are similar from perspectives of

legal risks, reputational risks and financial losses.

The need for real-time fraud monitoring of

banking transactions across the enterprise is well

established and many banks are catching up to

move from traditional methods to advanced real-

time fraud monitoring systems. But many banks

are still thriving on old generation anti-money

laundering systems which only can perform offline

transaction monitoring by taking the transaction

data from core systems offline or in batch mode.

Also, there is a lacuna with these systems from

agility and flexibility perspective for changes

required with the changing times and the

regulatory mandates.




Need for real-time transaction

monitoring in AML capabilities

With the advancements in operational systems

and technology for faster, rather, real-time

payments & remittances and the rise of multi-

channel banking, the money launderers in this

digital era need less than an hour or few hours at

the maximum to complete the three key steps of

money laundering process: Placement –placing

the illegal money into the system; Layering -

separating illegal money from the source through

a series of transactions and making it difficult to

trace the origin; and Integration- converting the

illegal money to legitimate form. This further

accentuates the need for real-time monitoring

capabilities for detection of suspicious

transactions and effectively combating money

launderers. Majority of the banks across the globe

are not well-equipped with real-time suspicious

transaction monitoring in their AML systems and

this is one area banks need to gear up.

KPMG recently released a report on Global Anti-

Money Laundering 2014, based on a survey of

over 300 AML professionals from 48 countries

around the world. As per the report:-

Know-Your-Customer continues to be an

area of concern, with 70 percent of

respondents stating that they had been

subject to a regulatory visit focusing on

this area. Regulatory investigations have

frequently drawn attention to significant

gaps in the KYC information maintained

by financial institutions

88% of AML & compliance professionals

quizzed by KPMG said that establishing a

counter-mechanism to stop money

laundering was back at the top of their

firms' agenda

Regulatory approach was ranked as the

top AML concern, with 65 percent of

respondents stating that regulatory visits

were AML personnel’s primary concern.

84 percent of respondents stated that the

pace and impact of regulatory changes

were significant challenges to their

operations

Transaction monitoring systems continue

to represent the greatest area of AML

spending, while satisfaction for these

systems has declined with an average

score of 3.42 out of 5 with regards to

efficiency and effectiveness. Only 58

percent of respondents stated that their

organization’s transaction monitoring

system was able to monitor transactions

across different businesses. This was a

significant increase over the last few

years owing to complying with growing

regulatory expectations




Given this context, there is an opportunity for banks to align their anti-fraud and anti-money laundering

efforts with an integrated approach. Here are the key aspects of alignment of anti-fraud and anti-money

laundering efforts in a bank.




Operational Processes and people

Both anti-fraud and anti-money laundering

departments of the bank need dedicated

investigation teams who investigate each

case/alert that systems generate based on the

severity level and category of the alert as per the

defined processes of the bank. The nature of

business has become such that these investigation

teams need to operate on a continuous basis and

even 24/7 depending on how the fraud processes

are configured. Both these teams need similar

investigation tools for completing the

investigation workflows and finding the evidences

in order to resolve cases. It makes sense for the

banks to optimize the efforts of investigation

teams by having combined AML and fraud

investigation under single umbrella.

IT Platform

Real-time transaction monitoring, integrated case

management and comprehensive investigation

workbench are the common basic build blocks of

both fraud management and anti-money

laundering systems. If both fraud management

and AML are done using single platform, banks

will have huge benefits in terms of capital and

operational expenditure. This would lead to

significant benefits in terms of total cost of

ownership (TCO).

Data

Data Integration is one challenging area for banks.

Both fraud management and AML systems need

the integration with the same host systems (core

banking system, credit cards etc.) for the

corresponding transactional data and master data.

If there is a single platform, that can handle real-

time integration with host systems for getting the

events from the host systems and use the same

both fraud management and AML purposes, this

could be hugely beneficial for the bank.




Conclusion

With the need for sophisticated fraud detection capabilities and current state of outdated AML system many banks have

combined Real-time Enterprise Fraud Management and AML platform, which is indeed an idea whose time has come. Few

banks have already begun their journey on this front and we expect more banks to join the bandwagon.




About Us

CustomerXPs, a Red Herring Asia Top 100 winner, is a Software

product Company that creates real-time, intelligent products that

empower Banking, Retail and Telecom Enterprises with instant

insights enabling influenced outcomes of deeper customer

engagement and fraud-free transactions. With a vision to provide

ammunition to its clients to delight their customers even before

they could articulate their needs/wants, CustomerXPs software

identifies and solves, in real-time, complex problems in the areas of

customer experience management, contextual right-sell, fraud

monitoring, compliance, accurately predicting risk and automating

targeted treatments.

Jayaprakash Kavala is the Head of Product Management at CustomerXPs. He can

be reached at [email protected]. For more information on

Enterprise Fraud Management and Anti-Money Laundering solution, please write

to us at [email protected] or visit us at www.customerxps.com

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Anti-Fraud and Anti-Money Laundering in Banking- The Common Denominators

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