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In his blog, Enda Shirley explores what will happen next to the banking industry after the FinCEN files controversy

Thursday 29 October 2020
Read time: 3 mins
Enda Shirley image
The FinCEN leaks shocked the world when they were revealed by global media at the end of Septemberi. It’s led to plenty of bank-bashing over how wrongdoing on such a large scale could have gone on for so long, with few repercussions for the individuals concerned. However, a more appropriate response, as set out with this article, would be: is the AML compliance regime itself fit-for-purpose, given the major operational inefficiencies highlighted by the leaks? In this context, is there now a greater need for financial crime detection to go beyond just compliance?
 
Compliance professionals have complained for years that their anti-money laundering (AML) tools are insufficient to weed out increasingly sophisticated financial crime. There must be a greater focus in the industry, therefore, on arming these highly trained professionals with the technology they need, not just to achieve compliance but to go beyond (and really make a major impact on financial crime).
 
 

An industry challenge


Although the leaks cover less than 0.2% of the 12 million Suspicious Activity Reports (SARs) filed with FinCEN during the period 1999-2017, they still reveal some useful insights. But these are not the insights published in much of the mainstream news media, which seemed to misunderstand the role of SARS in AML compliance.
 
As outlined in the above referenced article on the leaks, what we can say is that:
  • Multiple SARs related to the same entities have been recorded by the same banks over a period of years, with no action taken
  • The size and siloed nature of many large financial institutions is such that money laundering suspects may be flagged by one team but not followed up by another
  • Collaboration between banks and regulators is not where it should be. Too often banks are fined for making mistakes, which does not create the right feeling of industry partnership needed to tackle money laundering
 
 

The right tools


What does this tell us? Certainly, that many of the problems highlighted come down to institutional challenges of the sort also revealed in a recent BAE Systems report on AML. Here, AML compliance professionals complained that too few SARs result in justice, international cooperation across the industry is still lacking, and that the metrics specified by regulators are often misaligned with the practicalities of catching criminals.
 
However, there’s also a clear challenge with tooling. Some 81% of respondents to our study revealed that they are concerned that money laundering is currently happening, with large numbers pointing to outdated technology (32%), difficulty in measuring the frequency of money laundering (34%) and users being overwhelmed by alerts (34%).
 
This is where AI-powered, cloud-based systems can add real value to AML teams. Such platforms typically require low CapEx and no hardware management costs. New capabilities can be switched on seamlessly to enhance the ability of compliance teams to extract actionable insight from data.
 
These data wrangling capabilities include:
 
Entity resolution: Advanced analytics sweep multiple data sources, resolving differences in spelling, abbreviations, and other inconsistencies and errors to provide a consolidated, unified record for individuals and entities.
 
This enables banks to accurately identify entities even when they are deliberately manipulating their ID and/or contact details. They can proactively alert teams to risky behaviours and interactions which would otherwise go undetected.
 
Network analytics: This can be used to rapidly uncover real-world connections across large volumes of apparently unconnected financial data, offering a major boost to investigative efforts.
 
 

Beyond compliance


Over two-fifths (43%) of financial institutions told us they want and need better technology to combat money laundering over the next five years. Increasingly, not just regulators but customers too are demanding these improvements. The driver therefore becomes not simply compliance with current regulations, but to go beyond by making a genuine impact on financial crime for the good of society.
 
Solutions such as BAE Systems’ NetReveal solve not just compliance and regulatory challenges, which is a given, but also the key challenge highlighted by the FinCEN leaks: low financial crime detection rates. It enables AML teams to become more proactive—using AI-powered analytics and risk-based scoring to drive 360-degree visibility into customers and unearth new insights.
 
These features can help to:
  • Alert banks to offboard or investigate those subjects of multiple SARs
  • Break down organisational siloes by providing a single view of each customer
  • Offer detailed customer risk data to share with regulators—driving improved collaboration
 

i. Leak reveals $2tn of possibly corrupt US financial activity,  David Pegg, The Guardian (20 September 2020)
Enda Shirley

About the author

 

Enda Shirley is Compliance Product Management Lead at BAE Systems Applied Intelligence

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