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Banks Must Get More Serious about Anti-Money Laundering Efforts

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Reetu-Khosla

By Reetu Khosla, Director of Risk, Fraud and Compliance Solutions, Pegasystems

2012 saw several well known financial institutions hit with extremely heavy fines and being publicly pilloried in the media for allowing money laundering and similar malpractices to occur either deliberately or inadvertently. Many others also had to set aside funds to cover potential settlements linked to money laundering cases and investigations.Reetu-Khosla

Industry commentators say the global banking industry should be braced for even more fines in 2013 especially as regulators in the USA and Europe seem keen to show they are serious about cracking down on banking malpractices and any failures in reporting on suspicious transactions, customers and behaviors.

These substantial penalties against both minor and major banking institutions are despite the fact that the industry recognizes anti-money laundering (AML) can affect practically every aspect of their operations from securities fraud to suspicious money movements. Indeed it’s been estimated that global spending by banks on AML is around $5 billion per annum with operational costs accounting for the majority of the spending (Source: Celent).

Nonetheless offshore tax havens, Ponzi schemes, sanctions violations and collusion have proven to be tougher to detect and stop than expected. While there are several reasons why this has happened, a significant reason is how ever more complex AML has become to enforce.

Just consider what’s involved. While it seems sensible, giving employees the tools to spot potential links between seemingly unrelated events becomes extremely difficult if they have to check across many hundreds of transactions. This is exacerbated when the transactions happen in different countries and pull in many different accounts, account holders and events.

So naturally financial service providers have often adopted an approach of doing ‘just enough’ to meet regulatory demands and ‘just in time’ to avoid penalties for non-compliance. This reflects how AML compliance is about striking a difficult balance between minimizing costs and risks of non-compliance. However, taking a manual, decentralized approach to compliance is no longer sustainable, especially considering the sheer magnitude of new regulatory demands and the determination of the regulators to investigate and punish.

But, how can institutions best proceed in re-evaluating processes and systems to support their AML compliance goals?

A starting point lies in how financial institutions’ Know Your Customer (KYC) processes and rules are defined and operated. These tend to require serious updating as many institutions have loose internal controls around KYC that can be bypassed. However, KYC to meet regulatory obligations risks impacting on how fast customers are onboarded. For instance, it already takes 30 to 60 days for some investment managers to onboard a new client. With tighter KYC requirements, as well proposed Ultimate Beneficial Owner and FATCA rules and other regulatory requirements this process could be further stretched resulting in further delays for customers, in addition to increasing time to revenue.

To address this, financial organisations need to apply a rules-driven and risk-based approach that takes into account variations in risks by customer, product and country specific requirements. This requires them to find the best ways to manage complex global KYC processes to not only ensure compliance to complex KYC requirements in multiple lines of business, geographies and products, but also to minimize the impact on the customer experience and time to on-board them.

Clearly there is no silver bullet solution to managing all risk within any organisation but there are proven technology platforms available that can help. The most effective ones allow for specialization by country, product and risk specific requirements without replacing existing back-end systems. Advanced, agile technologies integrate seamlessly with existing applications and core systems of record, maximizing previous technology investments. This also ensures new AML functionalities can be brought online much faster than having to wait for the installation of a new standalone system.

This approach can enable benefits well beyond compliance alone. For instance, rules-driven KYC technology not only ensures compliance to complex global, regional and product specific regulatory requirements, but it also can be leveraged for faster on-boarding, obtaining a 360-degree customer view and ultimately faster time to revenue.

A rules-based dynamic case management approach answers the other critical requirement for AML compliance – change. This is especially true for large-scale global financial services firms for whom the technology must be agile enough to change as rules and risks change, including acquisitions, new product offerings and new geographies. New regulations aren’t set in stone, frequently are revised and can take time to come into sharp focus. This makes it even more difficult for an organisation to know exactly how to comply as evidenced by the current confusion over Foreign Account Tax Compliance Act (FACTA) for example.

Overall these new rules-based, dynamic case management technology platforms enable compliance efforts to become more efficient, and just as importantly, tailored to specific geographic and business needs. For example, a global financial services institution might have to comply with a different set of laws in Europe than in Asia Pacific and the USA. Agile, rules-driven technology provides a platform to look at risk holistically and meet multiple regulatory requirements on one platform. The value of this is shown when global institutions utilize rules-driven KYC technology to not only meet AML-specific KYC requirements, but also KYC-specific suitability requirements in other regional jurisdictions such as MiFID in Europe and FINRA rules in the U.S.

This unified capability will be further tested globally to meet new regulatory demands such new FATCA requirements. Non-American institutions will need to identify and track multiple complex relationships, including direct and indirect relationships with U.S. citizens and then drive due diligence to classify customers and meet the internal and external tax reporting requirements. However it develops, FACTA should be supported on the same KYC platform through simply extending it to accommodate the new requirements.

These efficiencies are also passed onto the customer with an improved experience of their banking relationship. The same unified KYC technology that’s ensuring compliance also ensures the same customer has consistent due diligence, minimizes the repetition of documentation requests, risk rating and disposition globally while significantly improving time to revenue.

Complex global financial institutions now realize implementing unified, agile technology is the only sound approach to meet ever-increasing regulatory demands, while maintaining costs and reducing customer impact. In 2013 we will undoubtedly see more and more institutions follow this approach as they look to overcome these compliance challenges.

 

Banking

UKRSIBBANK, part of BNP Paribas Group, announces a strategic partnership with financial wellbeing startup Dreams, to enhance the digital user experience of its 2 million customers in Ukraine

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UKRSIBBANK, part of BNP Paribas Group, announces a strategic partnership with financial wellbeing startup Dreams, to enhance the digital user experience of its 2 million customers in Ukraine 1
  • The technology powering popular consumer app, Dreams – which has helped 460,000 users save over 440M EUR – will be made available to UKRSIBBANK’s users in Ukraine.
  • Through the integration of the Dreams platform within UKRSIBBANK’s own digital tools, customers of the bank can set and achieve money-saving goals, track and improve their financial lives.

Dreams (https://www.getdreams.com/en/b2b/), the Stockholm-born fintech empowering millennials to save and feel better about their money, today announces a strategic partnership with Ukrainian commercial bank UKRSIBBANK, a subsidiary of French international bank BNP Paribas Group.

This partnership follows the announcement earlier this year of Dreams’ first enterprise partnership with banking software provider Silverlake Symmetri, and the recent unveiling of a new department in Stockholm dedicated to the development of Dreams’ B2B partnerships. The announcement marks an expansion of the company’s business model as it consolidates its B2B offering and evolves its services as a provider of white label solutions for financial institutions.

Through the integration within UKRSIBBANK’s own digital tools of the Dreams Platform – which is rooted in scientific principles – customers can set and achieve money-saving goals through clever, automated saving features, in addition to nudges and saving hacks.

The Dreams Platform will be included as part of UKRSIBBANK’s digital banking offering for its 2 million+ customers, and is set to grant millions of potential consumers across Ukraine access to products which will help keep their finances on track and improve their financial lives.

The rise in digital self-help tools has long been anticipated by Dreams and forward-thinking financial institutions. The current global economic uncertainty brought about by the COVID-19 pandemic has also placed significant strains on people’s finances, and the demand for better personal finance tools has only accelerated. The partnership with Dreams is welcomed by UKRSIBBANK which is currently striving to equip its customers with the best possible banking solutions whilst helping them achieve a more sustainable lifestyle.

Dreams is firmly established as an authority in its industry, having launched its consumer-facing app in its native Sweden in 2016 and Norway in 2018 – where it has already achieved a 16% market share of all 20-39 year olds.

Henrik Rosvall, CEO and founder of Dreams, comments: “It’s a true honour to be partnering with UKRSIBBANK and BNP Paribas Group, and we’re incredibly excited to be introducing the Dreams solution to UKRSIBBANK’s customers and the wider Ukrainian market.

“Dreams and UKRSIBBANK can now lead the charge, with BNP Paribas Group’s corporate strategy having shifted in recent years to focus on guiding customers towards responsible consumption and sustainable personal finance management. I’m confident that our mission of helping millennials save more and feel better about their money makes us the ideal partners.

“Our financial wellbeing platform – which is built upon behavioural science and personal finance management principles – will provide the perfect tool for UKRSIBBANK to help its customers make better financial choices and become more sustainable in the way they handle their finances. This partnership will also help UKRSIBBANK safeguard the loyalty of its customers and futureproof its digital banking offering against a growing number of challenger banks and fintechs.”

Konstantin Lezhnin, Head of Retail at UKRSIBBANK BNP Paribas Group, comments: “I believe that banks have a role to improve their customers’ lives. Planning and saving for important life events improves our quality of life by reducing stress levels, and we wish to make our customers feel more confident and in-control of their lives.

“UKRSIBBANK has always applied innovative ways to assist our customers in financial planning, so we are very happy to now be working with Dreams, the best European player in behavioural savings. They have an extremely solid track record in Sweden and Norway based on scientific research, so we are confident that this partnership will work positively for our customers in Ukraine. This also demonstrates our strategy to cooperate with startups and innovative companies that seek ways to expand their operations.”

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Banking

Three times as many SMEs are satisfied than dissatisfied with COVID-19 support from their bank or building society

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Three times as many SMEs are satisfied than dissatisfied with COVID-19 support from their bank or building society 2
  • More SMEs are satisfied (38%) than dissatisfied (13%) with their COVID-19 banking support
  • Decline in SMEs using personal current accounts for business banking as more seek access to the Government-backed lending scheme
  • Fewer SMEs believe nearby branches are important when choosing a bank or building society
  • 15% of SMEs use mobile or online banking more often than before the COVID-19 pandemic
  • When SMEs do look to switch, low or no charges for business banking remains the most important factor (47%) in selecting a new account

Three times as many SMEs have been satisfied than dissatisfied with the COVID-19 support available from their bank or building society, according to YouGov research commissioned by the Current Account Switch Service.

Overall, four in ten SMEs (38%) were satisfied with the support they received from their business current account provider since the pandemic began. This contrasts with one in ten SMEs (13%) who were dissatisfied.  In general, more than half of SMEs (55%) are satisfied with their current business bank account, compared to 8% who are dissatisfied. However, inertia remains a problem as half of SMEs (50%) said they would not look to switch business accounts even if they were dissatisfied with their current bank or building society.

When SMEs do look to switch, low or no charges for business banking remains the most important factor (47%) in selecting a new account. Advanced digital features (35%), good interest rates (34%), and a personal connection through a relationship manager (33%) also mattered.

The SME banking research was conducted both in February and in September 2020. It also reveals that since the start of the pandemic, the proportion of SMEs using business current accounts has increased from 69% in February to 74% in September as firms are required to have a business account to receive access to the Government-backed lending schemes.

However, one in five SMEs (20%) still use a personal current account for their business banking needs, despite the risk that tax liabilities get confused, and calculations are made incorrectly. These businesses are also missing out on a range of business-only banking benefits such as integrated accounting software or invoicing tools offered by different providers.

In addition, the research shows the importance of branches to SMEs has declined over the seven months. When asked in February, more than a fifth of SMEs (22%) said the availability of nearby bank branches was important when selecting their bank or building society, compared to 17% in September.  However, the Post Office could be fulfilling the role of branches in some areas.

The declining importance of nearby branches was most noticeable in the North East region where 35% of SMEs believed branches were important in February, falling to 18% in September. The importance of nearby branches also varies between industries. One in ten IT companies (11%) said nearby branches were an important factor compared to nearly three in ten (29%) leisure and hospitality businesses.

While branches are less important, digital banking use has increased for some SMEs. Several firms have started to use online banking for the first time as 15% of SMEs say they use mobile or online banking more often than before the social distancing measures were introduced.

Maha El Dimachki, Chief Payments Officer of Pay.UK, owner and operator of the Current Account Switch Service, said: “Across the country, banks and building societies have been working hard in difficult circumstances to meet customer needs. Thanks to that work, small and medium-sized enterprises are more likely to say they are satisfied than dissatisfied with the support they received from their business account provider since the pandemic started. But lockdown has changed small business behaviour dramatically, in a way that points to significant changes to their banking needs both now and in future.

“It’s encouraging to see many small businesses are generally satisfied with their business bank accounts. However, even when businesses are unhappy with their bank, some don’t consider switching as an option, despite the many benefits available. We’ll continue to raise awareness of the benefits of switching among small businesses to help them get the most from their bank account.”

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Banking

The Next Evolution in Banking

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The Next Evolution in Banking 3

By Young Pham, Chief Strategy Officer at CI&T

Everything we know about banking is about to change. A new industry around the sharing of financial data is primed to give birth to a host of new consumer services, all thanks to Application Programming Interface (API) technology. Already known for being the safest place for money, there are opportunities for banks to expand that relationship to other aspects of the customer relationship. Banks will no longer simply be just a place to deposit and withdraw your cash, but a one-stop-shop for a range of data-sensitive services.

The passing of GDPR and the Payment Services Directive (PSD2) were the first steps in this process of banks modernising how they handled their customer data. However, incumbent institutions have so far not engaged enthusiastically. Rather, it was only after growing pressure from fintech challengers and government regulation that they were forced to open up and share their data. This should not be treated as a regulatory challenge, but rather a way to grasp the unique opportunities that banks have to reposition themselves as the most trusted resource for their customers.

Expanding offerings

It is hard to overestimate the breadth of possibilities arising from open banking, should banks choose to take advantage of this evolution. While the public rarely holds bankers in high regard, it still puts a high level of trust in banking institutions. People are more willing to hand over their sensitive data than they would be to almost any other private entity. Furthermore, banks have a unique perspective into their customers’ behaviours, needs and desires. Spending habits, income streams and risk appetites are just a few examples of the data that no other institution can tap in to.

There is certainly appetite to expand offerings. In our recent study of business banking customers, over 68% of respondents indicated that they were open to their financial institution providing digital non-banking services.  This includes services such as tax support, managing payroll, or invoicing to help them with their day-to-day businesses.

More banks should consider how open banking can maximise their digital capabilities and create a greater range of services for customers to enjoy. Such offerings could be tailored according to each bank and their particular customer audience. For instance, banks could offer everyday services for most users, such as insurance for individuals or business management tools for business accounts. Alternatively, banks could offer more exclusive and specialised services for high net worth individuals to meet their specific needs, such as art appraisal and investment management.

The idea that a firm can expand its offering into new verticals is hardly new. Many of the world’s largest tech companies, such as Apple and Amazon, already offer diverse products including hardware, software, entertainment and cloud services. They are able to do this thanks to the vast quantities of data they have gathered, which provide invaluable insights into consumer behaviour and demand. Banks are in prime position to follow the example of these top tier tech companies thanks to their monopoly on key financial data.

Disruptors vs incumbents

The business model described above is already being adopted by numerous challenger banks. These firms have led the innovative charge thus far, thanks largely to their agility afforded by their smaller size. Indeed, some fintech banks already provide a range of non-banking services to their customers. Revolut, for instance, offers users several types of travel insurance as well as access to airport lounges as part of its premium service for a monthly subscription.

These offerings are not a sign that the challenger banks are about to topple the large incumbents. Rather, these disruptors have always flagged the gaps in the market that larger institutions have been too slow to fill. It is now up to the established banks to learn from their example.

While challenger banks may have a first-mover advantage for these services, the incumbents have two key advantages: capital and credibility. Firstly, the top banks have enough cash to fund this overhaul of their business models. While the challengers have been able to afford to do so in recent years, they lack the reserves to tide them over during economic downturns such as the current pandemic.

Secondly, even though challenger banks are perceived as more convenient and are less vilified than traditional banks, the public still trusts the latter. Many of these large banks can point to their extended histories and long-term investment success – accolades young challengers simply cannot match. In short, people don’t have to like their bank to trust them with their cash and their data. These two advantages strongly suggest that large banks are better positioned to take advantage of the open banking business model in the long term, despite being slower to adopt and adapt.

What’s next?

All this opportunity is within reach. We already have the technical capabilities for data sharing, and the regulatory framework is not insurmountable. Rather, the key for this evolution of the sector lies in banks’ appetite for risk and willingness to reinvent their business model.

Banks need to take a leap of faith and leave behind the business paradigm to which they’ve become accustomed. They should embrace transparency, run towards regulation and take advantage of opportunities to invest in these areas or collaborate with outside technology firms. Only then will banks be able to make the most of their data assets, creating value for the customer and further strengthening the relationship.

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