Financial crime – Part 3

What will the new generation of financial crimebuster banks look like?

In the last of our three-blog series on the implications of financial crime fighting for banks, we focus on a new generation of crimebuster banks. What will they look like? How will they equip themselves to meet the regulatory, commercial and societal pressures ahead? Read Part 1 and Part 2 .

First, these banks will have the bandwidth to face AML/CTF, KYC and other regulatory pressures with optimum responses. These responses will satisfy three criteria:

  1. Compliant regulatory capability – Based on effective technology solutions, they will meet and very likely exceed current regulatory standards.
  2. Secure service for honest customers – They will provide legitimate bank customers with a reliable, secure and convenient service, one that does not alienate them or make them feel like they are being treated as criminals.
  3. Prediction and prevention – Their responses will fully enable banks to preempt financial crime before it occurs, in addition to reacting to financial crime, demonstrating that prevention is better than cure.

Banks must satisfy these criteria consistently and cost-effectively, supported by intelligent technology choices and implementation. In practice, this means looking at the operational context going forward, then deciding which direction is most likely to equip them to be effective financial crimefighters.

The operational context itself is easy to predict. The role of criminal transactions, including money laundering, in funding terrorism, international organized crime and other major societal threats is set to grow exponentially unless truly effective controls are in place. In response, the regulators will not rest. In the years ahead, expect more restrictive statutory demands on financial institutions, driving them to play a stronger role in countering financial crime. This means more complexity, from understanding and interpreting new rules through to applying them in practice. AMDL5 is just one example of what’s to come.

Failing to comply and successfully fight financial crime will result in very real and highly undesirable outcomes. For some financial institutions, high levels of penalty payments for regulatory noncompliance are already impacting the balance sheet. Institutional responsibility can now extend all the way to individual consequences for compliance managers within banks, who may even have personal responsibility for errors and oversights in due diligence. The worst-case scenario it that the banking license itself may come under threat.

Clearly, banks cannot ignore these regulatory trends and their direct implications, but the most effective crimefighters will do much more than the statutory minimum. They will recognize their pivotal role in identifying, limiting and shutting down financial crime. How effectively banks meet these expectations will impact their brand profiles and the trust and loyalty of their customers.

This highly challenging scenario obliges banks to confront the realities of effective technology-based responses. As we have noted already, cost and time efficiency are hugely important, and financial institutions cannot afford noncompliance and failure. They cannot ignore technology developments and possibilities.

The daunting scale of the data aggregation and analysis task – global, distributed across multiple platforms and potentially involving billions of individual transactions and internet communications – mean that legacy technologies are not remotely adequate for fighting tomorrow’s financial crimes. The most effective crimefighting banks will equip themselves with the most effective technologies: big data analysis capabilities, artificial intelligence and machine learning to enable smart, self-evolving systems.

Merely reacting to and attempting to contain financial crime after it occurs is no longer an acceptable response. It may well prove to be the case that outsourcing the task does not provide the requisite consistency and total reliability. This is a responsibility banks must face. In the battle to remain not just one step ahead, but many, the next logical step is to seek cutting-edge advice on the optimum technology-enabled responses. One thing is certain: The financial criminals are not going to limit their ruthless ingenuity.


About the Author

Renato Ndokaj

Renato Ndokaj is a principal consultant at Capco and has over a decade of experience in regulatory reporting, risk and compliance in financial services.


The content and opinions posted on this blog and any corresponding comments are the personal opinions of the original authors, not those of Capco.