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Andrew Davies, VP, Global Market Strategy, Financial Crime Risk Management, Fiserv

Anti-money laundering regulations in Europe will shift into the spotlight this summer as the fourth EU Directive on Money Laundering becomes law in June. Add to this the fact that the frequency of financial crime attacks is on the rise,financial institutions (FIs) must work harder and collaborate to tackle financial crime and fraud. In the UK for example, more than 75 cyber attacks were reported to the Financial Conduct Authority (FCA) in the UK in 2016, with only five instances reported in 2014.

Industry collaboration plays a large role in reducing financial crime and fraud; something which will be essential to combat the risks that are becoming more and more complex. In addition, FIs must also align on collaboration as not only do organisations lose money from financial crime itself, they also face huge fines from the FCA for failing to prevent an attack. CEB Tower Group statistics show how fines have increased exponentially over the past 10 years; the increased frequency and higher value nature of the attacks has resulted in fines growing by 55,000 percent.

The unpredictability of financial crime creates difficulties for FIs as they implement prevention strategies. In order to successfully put these resource-sharing strategies in place, and reduce the impact of fraud, organisations to need ensure that they have the appropriate infrastructure to manage the process. Anti-Money Laundering (AML), Know Your Customer (KYC) and fraud prevention solutions are all key to reducing and managing financial crime risk, yet knowing which one to prioritise can prove a challenge. By pulling together full customer profiles, unusual behaviour that is indicative of money laundering, tax evasion, human trafficking and instances of fraud can be identified early. 

Understand the customer

Not only do AML and KYC solutions ensure organisations manage risk, they also enable them to stay ahead of competition. If an organisation does not know and understand their customer fully, it is impossible to understand the risk associated with them. Combining data collected from industry groups of FIs with these customer-centric profiles is one way organisations can identify what might be crime and what is just a slightly unusual transaction. More accurate detection will result in greater operational efficiency.

Implementing customer-centric infrastructure is only one benefit of collaborative work between teams and within the industry to combat risk. The new EU AML Directive heightens the attention that FIs must also pay to reputational risk and their moral imperative. If a company is found to be a vehicle for money laundering activities for criminals, the reputational damage to that organisation is substantial. Customers will often feel exposed and take their business elsewhere. Research by CEB Tower Group revealed that only 14 percent of fraud departments amongst FIs have a complete customer-centric view. This highlights a knowledge gap across the industry that must be overcome in order to provide a full customer profile that can be used to reduce financial crime.

Reap the rewards of data

The way that customers interact with FIs and manage their money is constantly changing. Consumers want access to their financial assets through multiple channels and across multiple devices, whenever and wherever it suits them. With this in mind, it is crucial that FIs gather data on every aspect of customer behaviour regardless of what channel or device they choose to use to interact with their institution.Cross-divisional work and collaboration ensures that thorough customer profiles can be compiled with threats identified more quickly and acted upon more efficiently.

Siloed AML and fraud prevention teams are the traditional structure within an FI, resulting in both teams gathering information on the same customer separately. However, research has shown that there is an 80 percent overlap in AML and fraud detection tools and processes, demonstrating the benefits of leveraging these assets across multiple groups to make financial crime risk management and prevention more effective and reliable.

By collaborating and integrating assets and processes, data can be more efficiently leveraged.  Fraudulent behaviour is more likely to be recognised before it has happened, allowing the FI time to prevent it and consequently reduce the loss they suffer while also mitigating the negative impact on customers. By automatically collecting and analysing data, companies are able to gather this type of information, evaluate it through a scorecard system, and define the risk associated with each person.

Bringing AML and fraud teams together creates a comprehensive strategy towards KYC risk management and ensures that suspicious behaviour is detected as early as possible. Now more than ever, a common infrastructure that displays customer-level risk data at an FI level is essential if institutions are to pinpoint and tackle increasingly sophisticated criminal activity.

Consolidate the internal with the external

The richer the pool of data that FIs have at their disposal, the more informed and valuable the analysis of the data becomes, particularly in relation to analytic models. Customer checks on fraud and AML risk typically only happen as customers are on-boarded to identify the risk that they bring. However, the risk assessment process must continue for the duration of their time as a customer. Joined-up AML and fraud teams and technology can facilitate this, by comparing a customer’s behaviour in relation to other customers and leveraging best practices to accurately detect fraudulent activities, while also providing FIs with operational efficiencies.

Institutions are able to build an even more detailed, cross-industry profile of a customer by compiling data collected internally with data from external sources. Being able to understand customers more comprehensively ensures that organisations can identify and flag unusual behaviour, resulting in fraudulent activity being detected more quickly, and more accurately.The data from multiple sources across industries also allows FIs to understand nuances in customer behaviour more easily.

Integrating assets and data needs strong management to make sure that anomaly detection systems are versatile and allow both AML and fraud teams to see problems in their entirety.Taking a risk-based approach ensures that the compliance team is able to focus on genuine suspicious activity and hence reduce disruption to legitimate customers. 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.

Companies in the financial sector are working hard to explore the benefits and opportunities of collaboration; something which is crucial with the EU AML Directive coming into force. Organisations are focusing on how they can better collaborate to use the data at their disposal to reduce, and hopefully prevent, fraud and money-laundering activities within the industry. The wealth of data available means that FIs can achieve a holistic view of customers’ behaviour. Additionally, by collaborating and combining data from internal processes with other collective-data sources, organisations are able to better analyse suspicious activity in real-time. The data available permits an FI to know their customers better, and this will result in prompt adherence to the new regulations, while also ensuring that legitimate customers receive the best experience possible without unnecessary disruption.

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