By John Edison, Global Head of Financial Crime and Compliance Management Products, Oracle Financial Services

Financial crime has never been so rife nor so sophisticated. Case in point: the government’s pandemic support loans have been a high-profile victim of financial crime in recent months with over £1.1 billion of suspected fraud prevented[1] so far in the ‘Bounce Back’ scheme alone. Governments and large banks are contending with large-scale financial crime and have technology geared to fit their broad needs, but what about smaller institutions that are under the same pressures as their larger counterparts?

Money laundering is one area of financial crime that’s becoming particularly problematic for the industry with fines topping  £36 million[2] in the first six months of 2020. Mid-sized banks are especially at risk of suffering these kinds of breaches and with far fewer resources to work with compared to larger institutions, they need more support. Existing anti-money laundering applications are often incomplete and lack the flexibility for smaller financial institutions to maximise efficiency.

Already facing pressure from the pandemic, Brexit, and more regulation, it’s crucial smaller financial institutions arm themselves with technology to win the war against money laundering. The cloud can go a long way to help with new applications enabling mid-sized banks to streamline compliance activities and quickly identify abnormal customer behaviour to stop the illicit activity.

The most vulnerable are the hardest hit

Smaller banks need to squeeze every penny in the best of times. Their business models are dependent on ambitious plans to grow through innovation and acquisitions. They need systems that can scale and improve as they do, and that will protect them as the risk of money laundering and other illegal activities increases during this unprecedented time. In short, they need access to the same world-class technology that big banks employ, but tailored for them in an easy to manage, cost-effective way.

Like larger financial institutions, smaller financial institutions find their anti-money laundering programmes plagued by low detection rates and high false positives. Larger financial institutions have a range of options for tackling this problem. These include building new scenarios and machine learning models in-house, working with niche vendors to tackle specific issues, or purchasing a best-in-class, end-to-end solution. In contrast, smaller financial institutions have fewer resources to build these capabilities in-house or patch together niche solutions. Consequently, their core anti-money laundering system needs to increase detection effectiveness and accuracy on its own.

A new generation of anti-money laundering technology

In light of these threats and the special needs of smaller banks, a new kind of protection is required. This new software needs to offer the same quality of protection enjoyed by larger banks without the time and expense required to implement and maintain an on-premise solution. The key to both of these issues lies in the cloud. Solutions based in the cloud and integrated end-to-end offer key advantages over traditional programmes.

For smaller banks, every hour is vital and cannot afford to be squandered on managing time-consuming deployments and upgrades. Out of the box, these solutions are largely self-sufficient, equipped with a strong base of industry-approved watchlists and sanctions lists, along with inbuilt tools for custom scenario design, analysis, threshold simulation, and tuning. This is all the fuel the software needs to detect and prevent money laundering attempts at accelerating speed and efficiency with less and less oversight. This reduced need for human intervention frees up crucial hours for already overstretched IT and anti-money laundering teams to deal with more complicated issues that require their experience and personal touch.

Another major advantage of cloud-based programming is how easy it is to scale and reconfigure to each bank’s specific needs. Banks can purchase the services relevant to their specific needs and vulnerabilities, rather than having to invest in systems that will rarely create value for the group. Subsequently, the banks can invest more in this infrastructure as they grow, adding new services or expanding their existing capabilities as they need them.

The cloud is also far more cost-effective than any traditional equivalent. Not only does this eliminate the need for additional hardware and middleware, but installation costs are also removed, and implementation costs are reduced. The cloud also eliminates the unpredictable costs of managing, patching, and updating software and hardware.

A new future for banking

Financial crime is not going to disappear any time soon. Mid-sized banks are particularly vulnerable, failing to enjoy the same modern crime detection afforded by bigger banks. But new tools designed to fit their unique needs can help them survive this environment, particularly when it comes to anti-money laundering applications. Cloud-based protection provides all the capabilities and flexibility that smaller financial institutions need in an easy to manage and cost-effective way. By focusing on effectiveness and efficiency at optimal cost, cloud solutions can help mid-sized financial institutions stay safe, compliant, and ready for business growth.

[1] https://www.ft.com/content/4d2a9837-c233-4d16-8ec4-5d7deaa403ab

[2]https://www.lawgazette.co.uk/practice/aml-fines-falling-global-survey-suggests/5105306.article#:~:text=UK%20fines%20for%20money%2Dlaundering,m%20(%C2%A398.2m).