What may be one of the lowest-profile, yet major drivers in the development of anti-money laundering compliance strategy and technology these days? The not-too-big, not-so-small, trusted local bank.
We already know that regulators around the globe are responding to anti-money laundering compliance failures with zero tolerance; this is now evident in every segment of the financial services industry, independent of the financial size or geographic footprint of an institution. This trend is arguably having a disproportionate impact on trusted local banks these days, as regulators now turn their focus to the next level of financial institution.
Since each size and type of institution logically has a different level of risk based on a number of factors – including products offered, customer types, and geographical operation among others – regulators and financial institutions agreed that a “risk-based approach” would mitigate the major threats faced by any given institution. This risk-based approach is far preferable than burdening any of them with an inflexible, prescriptive, one-size-fits-all approach that ignores their distinct business models and risks.
Regardless of the institution’s uniqueness to one another, regulators expect financial institutions to embrace technology as part of their anti-money laundering compliance strategy. These technologies allow them to address specific “core” areas of AML compliance and recognize the money laundering risks customers pose through appropriate customer due diligence, monitoring of financial activities, and screening against watch lists. But here’s where the difference between large or mega-financial institutions and a local bank’s compliance efforts (and regulatory expectations) is quickly disappearing.
In the past, smaller financial institutions had more freedom to leverage a greater amount of manual processes and fewer technical solutions to address these core AML practices as compared to much larger and more complex firms. But due to the increase in money laundering crimes, as well as the impact of sophisticated criminal organizations exploiting compliance gaps, many banks have had to rethink their strategies – and perhaps face the fact that they are not as close to their customers as they once were.
Much of the sophisticated AML technology in the industry was initially developed and designed with the largest institutions in mind. And nobody is likely to argue that these large institutions have serious risk exposure to money laundering that served as the primary driver behind the development of leading-edge AML technology. The benefit to the industry at large is that these AML technologies have been “road tested” and proven to be effective. The downside is that not every financial institution can afford the price tag to replicate those specific implementations.
Putting aside the price factor for a moment, solutions designed for large enterprise financial institutions are often not downwardly scalable to the technical infrastructure of smaller banks. More importantly, for many institutions, simply implementing one or more separate solutions for Customer Due Diligence monitoring and sanctions screening, that lack integration with one another and produce output requiring additional manual analysis, doesn’t solve the demands of their regulator. Additionally, it may produce more effort to manage these one-off systems than is feasible with already stretched staff work allocations. Ultimately, this scenario can result in trading off one bad situation for another.
Because these institutions collectively represent huge segments of the public, and a very significant percentage of financial markets, local banks are demanding that technology providers provide advanced technology solutions that are more mindful of their own ROI requirements – while also meeting their regulator’s demands for compliance.
Realizing that integration is a key component to meeting anti-money laundering regulations more easily and cost effectively, the “local” bank is more often looking to restructure their AML compliance approach to enabling technologies. However, they don’t want to just make a change now, only to find that the rules have changed again before they paid off their initial investment. Therefore, they are looking to “future proof” their AML compliance programs; that will break them out of the old AML compliance framework strategies, while incorporating state-of-the art technology.
What’s interesting, and the point of this blog, is that what’s propelling AML technology strategy and change in this current climate is different than what it has been in the past.
The driver for change now is the “ask” for strategies and technology solutions which will benefit both small and large institutions. In fact, today’s product roadmaps address a full range of anti-money laundering issues, while still supporting the high-quality customer experience you would expect from your not-too-big, not-so-small, trusted local bank.
So, who’s in the driver’s seat now?
Content originally published by Joe Bognanno