Using technology to automate across the financial crime lifecycle

The views and opinions expressed in this article are those of the thought leader as an individual, and are not attributed to CeFPro or any particular organization.

Guy Mettrick, Global Industry Lead – Financial Services, Appian

The importance of Know your Customer (KYC) cannot be understated, as it is the gateway to other risk functions such as the Customer Risk Assessment, credit decisioning, anti-money laundering (AML), and fraud detection functions.

What are the factors that are driving change within KYC?

Financial services organisations are having to constantly adapt and evolve their KYC compliance functions to meet changing business and regulatory needs. And just as legitimate firms innovate, so do criminal organisations and individuals as they find new ways to hide their identity and that of their transactions.

In addition, client expectations around the use of digital technology are requiring financial firms to be much more responsive and transparent with their interactions and address queries and requests much more quickly than ever before.

Furthermore, since the financial crisis of 2008/2009, corporate functions, and in particular risk teams, have grown in size and complexity to deal with increased scrutiny and review both from regulators, auditors, and senior management. This has resulted in increased numbers of risk personnel and more point solutions designed to address specific elements of risk management. This growth in personnel and technology has increased costs and the complexity  to unscalable levels. Regulation across the globe will continue to increase, as central banks look to extend and tighten rules around the interactions between firms, their clients, counterparties, suppliers, and those engaged in transactions.

Finally, the COVID-19 pandemic and other unexpected transformational events pose a further challenge for companies to continue delivering on the exceedingly high expectations of customers, management, risk teams, and regulators.

What are holding organisations back from delivering this change?

Against this backdrop of change, there are a number of technical and functional challenges firms need to address that impact the rate an organisation can adapt and evolve their operations and processes.

Siloed data sitting in a myriad of internal and external systems inhibits insight and slows down the rate at which reviews and investigations can be completed. Fragmented processes weaken governance and oversight within risk functions and manual hand-offs increase inefficiencies and the potential for human error. These processes are also not scalable or resilient in times of increased volume or unexpected events, such as a pandemic. This leads to increasing headcount to deliver change and compensate for systems limitations.

Teams involved in KYC, AML, and fraud detection have previously been in separate functions and often using different systems.

From a functional perspective, it can be seen that these teams are starting to collaborate more closely. This collaboration now needs to expand across lines of business and geographies if it is to be truly effective, and the right technologies are needed to support these goals across the organisation.

What kind of technologies can start to address these issues?

There are two key issues that organisations need to address in order to overcome these issues.

• Data analytics. The promise of Artificial Intelligence (AI) (specifically machine learning) is now being delivered. When firms use machine learning algorithms that are designed for specific use cases, they are now seeing greater success in reconciling data, identifying anomalies, spotting suspicious data patterns and improving detection rates. There are a number of very capable solutions available in the market, focussing on different areas of data analytics in support of KYC such as sanction, PEP screening, adverse media reviews, entity resolution and transaction monitoring.
• Data and process orchestration. The challenge now is how to take the insight from these sophisticated data analytics applications, combine it with data from other systems, and then run a process to complete an assessment, an investigation, a transaction or piece of work. This data and process orchestration is the glue that brings together all these different functions, AI technologies and disparate geographies by allowing teams to share and benefit from the work performed by other groups. This is done in a way that manages SLA’s, eliminates manual hand-offs, ensures correct procedures are followed, whilst increasing the efficiency and effectiveness of those processes. More importantly, this orchestration can be maintained within an environment that is subject to frequent internal and external drivers for change.

Therefore the key elements of a technology platform that enables data and process orchestration should be quickto deploy and adapt to changes in processes, data, and priorities based upon business and regulatory needs. This platform should also include:

1. Case management, workflow, real-time SLAs, document management.
2. Fast and flexible data integration, without the need to migrate data.
3. Automation options where appropriate.
4. Enterprise-grade scalability and security.

What will be the impact of ESG on the KYC function?

ESG efforts (which encompass environmental, social, and governance issues) have primarily been focussed on the environmental element and in particular carbon consumption as it permeates across the different levels of an organisation. Financial services firms are not only focussing on their own internal consumption goals but are also considering the impact of their customer’s businesses. Therefore, it is inevitable that ESG factors will form part of the KYC data gathering and assessment processes.

The challenge as ever is how to build applications to assess an organisation’s ESG goals, knowing that these goals and the rules supporting them will evolve and change over time based upon a mix of regulations and the goals/targets of each of the individual firms impacted. It is both the pace and frequency of this change that will challenge organisations.

Having a platform that allows firms to rapidly deploy these applications and then adapt to meet changing business and regulatory needs will allow them to deliver on key change drivers now and be confident that the technology will also be able to adapt to their future requirements.

Guy will be presenting at the 5th Fraud & Financial Crime Europe Summit, this event will be taking place on September 20-21 at One America Square, London.

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