SPECIAL ADVERTISING FEATURE
I
n today’s economic climate, financial
institutions must address financial
crime and compliance in a coordinated fashion. Those that don’t can suffer
losses, regulatory censure and fines, and,
perhaps equally as important, increased
reputational risk. In an age where customer
trust and loyalty are at a premium, having
already been jeopardized by the recent
sub-prime mortgage crisis and global credit
crunch (to which, incidentally, fraud was a
major cause and component), banks cannot
afford to gamble with such high stakes. Yet,
the business case driving many consolidation initiatives is, in some way or another,
artificially constrained, either by sociopolitical factors or by the limitations of the
underlying technology used by the systems
that support the banks response to these
threats.
The reality is many banks are not combining their fraud and anti-money laundering (AML) processes. They continue to
maintain separate efforts. Consider the
following scenario:
Lisa Stack and Mary Hunter work at the
same bank and rarely have time to chat.
One Monday morning, Lisa, a compliance
officer, grabs her coffee and digs into
the latest pile of reports on her desk.
A customer, Fred Kiter, had a busy
weekend. His activity broke rules for
Lisa’s excessive cash report. She begins
to investigate and notices that Fred
made several large ATM deposits. She
needs to determine if they are check
or cash. She makes a note to dig a little
deeper and then moves on to the next
case.
Meanwhile down the hall, Mary settles
in for another day of fraud investigations. As she reviews the check kiting
report, Fred Kiter jumps to the front
of the pile. His multiple ATM deposits, combined with several check
withdrawals, seem suspicious and she
delves into an investigation.
This scenario is not uncommon in the
real world. Two talented and busy investigators working on the exact same case
because their processes do not allow for
an easy synchronization of compliance
and fraud investigations.
Banks should consider consolidating their
AML and other compliance efforts with
their anti-fraud measures, rather than
relying on separate alerts and reports.
Increased efficiencies, reduced costs and
improved enterprise risk management are
all recognized by industry analysts, government regulatory and enforcement agencies
as the end result of a well executed consolidation strategy.
On a daily basis, using FRAML technology to achieve their consolidation goals,
banks can ensure that their limited
resources are used to investigate suspicious activity that is truly suspicious
(true positives), while reducing investigation of activity later determined to be
legitimate (false positives).
Institutions interested in a consolidated
approach need to be prepared for two
primary obstacles:
Focusing resources to investigate truly
suspicious activity reduces the potential
costs associated with non-compliance and
fraud losses, and helps ensure that the
bank’s resources are used to greatest effect.
• Overcoming the legacy of the different
approaches used to achieve separate
AML and anti-fraud goals,
• Removing the constraints imposed by
the adoption of solutions that rely on
first-generation (rules-based) technology.
These obstacles present a formidable
challenge to banks that wish to (a) maximize the return on their investment in
the people, processes and technology
associated with their AML and anti-fraud
efforts, and to (b) leverage the synergies
between these programs to gain the upper
hand on financial crime and compliance
risks and costs across the institution.
Overcoming these challenges will require
banks to move away from maintaining
separate autonomous programs and unite
their fraud and AML strategies at the organizational level. Fortunately, banks can
now look to consolidated solutions built on
second-generation (behavior-based) technology to address these challenges.
Second-generation technology allows for
far more than just the automation of core
banking system-type reports delivered
by first-generation technology. It helps
banks move beyond a decentralized, siloed
approach to AML and fraud, and consolidate
efforts by leveraging investments across
fraud, AML and other related compliance
functions.
Second-generation, fraud and AML
(FRAML) technology can consolidate
large volumes of information about
people, accounts and transactions from
a variety of disparate data sources –
making it easier to spot bad guys by
increasing the transparency between
customer behavior and the risk exposure to financial crime schemes that fall
outside of the gray areas that plague
first-generation rules-based systems.
In the scenario described earlier, a
consolidated FRAML approach would
work like this:
Mary and Lisa have changed their
process. They’ve combined all alerts
into a single system, which Mary
reviews. She’ll work fraud alerts on
her own, but when something looks
like it might be money laundering she
calls on Lisa for help. This process
allows Lisa to focus m