Data Governance and Controls: An Increasingly Critical Foundation for Financial Institutions’ AML Compliance Programs

Joshua Gross, Lead Business Consultant, NICE Actimize
Data Governance and Controls: An Increasingly Critical Foundation

In the modern world, financial transactions unfold with unprecedented speed and intricacy. Hand in hand, with this increase in the velocity and complexity of money movement also comes substantial increases in the amount of information being processed. This increase in the amount of information available, increases the risks hidden in the data associated with that information. Failures of Know Your Data (KYD) can lead to potential disaster for financial institutions. Given the importance of data, it is critical now, more than ever, that financial institutions adopt robust controls, mitigating hidden risks in transactional and consumer information. 

Fueled by the surging volumes and complexities of transactions, coupled with the possibility for improvements in operational efficiency, Anti-Money Laundering (AML) compliance solutions have evolved into intricate systems. As financial institutions pivot towards advanced analytics and even artificial intelligence to improve their AML compliance programs, it becomes clear that the efficacy of these sophisticated tools is intricately linked to the quality and robustness of the information feeding into the AML compliance solutions.  

Fundamentally, data serves as the bedrock of all analytics and the investigation process. It must be meticulously overseen through robust governance and controls to ensure its value. These processes have become ever more important because as the volumes, complexity, and breadth of the data increase and financial institutions adopt ever more sophisticated AML compliance solutions, AML programs’ overall reliance on data increases exponentially. This article delves into the critical importance of governance and specifically controls for data as the cornerstone of a strong AML compliance program, providing the necessary foundation to harness the capabilities of innovative AML compliance solutions. 

What is Data Governance and Data Controls? 

Data governance is a framework that defines how financial institutions manage, use, protect, and ensure the accuracy and integrity of their data. It involves establishing policies, processes, and standards to ensure that data is protected and fit for purpose. Data governance encompasses various aspects, including quality, security, privacy, and compliance with relevant regulations. The goal of data governance is to create a structured and consistent approach to data management, enabling financial institutions to make informed decisions, maintain accuracy and integrity, and address risks associated with inaccurate information or mishandling of data. Effective governance requires collaboration across departments, clear communication, and the establishment of roles and responsibilities to ensure accountability.  

Data controls, on the other hand, are the specific processes integrated into the data governance framework for the management, protection, and monitoring of data. These controls are crafted to enforce policies, thwart unauthorized access, and preserve the accuracy and integrity of data. Within the realm of data controls, a spectrum of technical and procedural processes exists, encompassing quality rules, integrity checks, and audits, among others. Essentially, data controls constitute a crucial element of data governance, encapsulating the essential processes and safeguards required to ensure accuracy and integrity.  

Data Governance and Controls are the Key to Effective AML Compliance Programs 

As more financial institutions adopt complex AML compliance solutions, the pivotal role of data governance and controls has become increasingly evident. The old adage of ‘garbage in, garbage out’ is never truer than when discussing the efficacy of modern AML compliance solutions. Without strong data governance, financial institutions are unable to ensure that the information feeding into their AML compliance solutions is accurate and reliable. Thus, data governance and controls have become increasingly important in upholding the integrity and effectiveness of entire AML compliance programs. 

In the absence of comprehensive governance and controls, the risk of inaccuracies and inconsistencies in AML data increases exponentially, jeopardizing the efficacy of the entire AML compliance program. Regulators are increasingly recognizing this and are placing emphasis on data governance and controls. This has included mandates such as maintaining end-to-end lineage and regular audits. 

However, financial institutions must recognize that the importance of data governance and controls is bigger than just regulatory adherence; it has become an imperative for upholding the integrity and effectiveness of the entire AML compliance program, without which operational costs could skyrocket. As financial institutions navigate the ever-changing landscape of regulatory compliance, investing in robust data governance practices has emerged as a strategic necessity, enabling AML compliance solutions to work in the way their designers intended.  

What is Data Accuracy and Integrity? 

Data accuracy refers to the precision and correctness of information within a dataset. If data is accurate, it means that the values align with the actual, real-world values they are intended to represent. In essence, accurate data is free from errors, discrepancies, or deviations from the truth. So, for example, if there is a Know Your Customer (KYC) record for John Smith, accurate data would mean the record contains “John” as the value for FIRST NAME and “Smith” as the value for last name; any other values would mean poor accuracy. Achieving data accuracy is where the challenge comes in. This process involves rigorous validations, and often cross-referencing against various sources, as well as adherence to predefined standards or rules to ensure that the data reflects the correct state.  

On the other hand, data integrity encompasses the broader concept of maintaining the overall reliability, consistency, and correctness of data throughout its life cycle. It goes beyond individual records or attributes and considers the entire dataset. Data integrity ensures that data is not altered or corrupted in unauthorized ways, preserving its accuracy and reliability. A simple example would be the criticality of integrity for wire transfer information, to ensure that nothing was removed or altered that might prevent an AML compliance solution from alerting and investigations to occur on an underlying transaction in the file. Techniques such as encryption, access controls, and lineage tracking are often employed to safeguard the integrity of data, preventing unauthorized modifications, and ensuring the trustworthiness of the entire dataset. In essence, data integrity is about the holistic assurance that data remains intact, unaltered, and dependable. 

Why is Data Accuracy and Integrity Important? 

Ensuring effective AML compliance necessitates a steadfast commitment to data accuracy and integrity, achievable only through robust governance. Financial institutions can only rely on the consistency and correctness of their AML compliance solutions by establishing stringent controls ensuring accuracy and integrity.  

The significance of data accuracy and integrity can easily be seen in relation to false positive and false negative alerts in transaction monitoring. False positives, stemming from inaccurate data triggering unnecessary alerts, can lead to a significant waste of resources and needless increases in program costs. Conversely, false negatives, arising from incomplete or unreliable data, may cause suspicious activity to go unreported, which could lead to potential regulatory action. Financial institutions that build strong data accuracy and integrity standards into their processes minimize these risks, thereby enhancing the overall efficiency and efficacy of their AML compliance program. 

Furthermore, the repercussions of decisions based on inaccurate or incomplete information by investigators and analysts can be severe. Data accuracy and integrity plays a pivotal role in guaranteeing that the information investigators and analysts are using is reliable and accurately mirrors customer activity. This reliability forms the bedrock for making well-informed decisions on whether financial activities are suspicious and if regulatory reporting is required. In the absence of data governance, ensuring the accuracy and integrity of the information used by investigators and analysts is extremely difficult and there is a significant risk of financial institutions overlooking suspicious activity. 

Achieving Better Data Accuracy and Integrity Through the Right Data Governance and Controls 

Establishing robust controls is critical to a strong data governance program and ensuring the accuracy and integrity of data for AML programs. Through strong controls, financial institutions can implement measures that not only monitor but also regulate the quality and integrity of data throughout its life cycle. With that said, as data consumers, AML compliance departments are not responsible for fixing the data they are consuming, but programs are responsible for clearly establishing requirements and creating controls to ensure the data they are receiving meets those requirements.  

AML compliance departments should be implementing controls to ensure the data they are consuming meets their requirements. These controls can encompass a spectrum of practices, including validations, verification, and auditing mechanisms. By implementing stringent quality and integrity controls, AML compliance programs can ensure that incoming data adheres to predefined standards, is not being altered or corrupted, and that their datasets are complete. All of this contributes to a strong data governance program that will enhance the effectiveness of the overall AML compliance program.  

What are Data Quality Controls? 

Individual attribute level data quality controls constitute a critical part of data governance for an AML compliance program. These controls operate at a granular level, built for specific attributes. For example, individual quality controls can be placed on attributes such as names to ensure that only alpha characters are used, or a quality control can be placed on Date of Birth (DOB) to ensure that the institution’s standardized DOB format is used or that a DOB is not before a certain date. The implementation of these controls at the individual attribute level ensures that the information being fed into the AML compliance solution meets stringent quality standards and comes in the format expected.  

The significance of individual attribute level controls extends beyond mere accuracy; it plays a pivotal role in maintaining the consistency and reliability of the data. For AML compliance, where the accuracy of customer and transactional information is paramount, these controls ultimately act as gatekeepers, preventing inaccuracies that could compromise the overall effectiveness of AML solutions and flagging bad or possibly even malicious data. While AML compliance is ultimately not responsible for fixing records flagged by quality controls, knowing the overall quality of the data and where errors are, allows for issues to be raised with the upstream data producers. 

What are Data Integrity Controls? 

Moving beyond the granularity of individual attribute level data controls, file-level integrity controls emerge as a crucial element in the robust architecture of data governance for an AML compliance program. While individual attribute controls focus on the specifics within a record, file-level controls extend their reach to ensure the overall integrity of entire datasets. Often, financial institutions have a multitude of customer and transactional feeds, each feed could contain multiple files, these various files and feeds are than all integrated into one master source and loaded into the AML compliance solutions. File-level integrity controls operate at this higher level to safeguard the cohesiveness and reliability of the entire dataset. For instance, file-level controls may involve checksum mechanisms or hash functions that generate unique identifiers for individual files. These identifiers act as digital fingerprints, allowing for the swift detection of any alterations or inconsistencies within the file as the file goes through its life cycle. The implementation of such controls guarantees that the entire dataset adheres to predefined expected standards, reinforcing the trustworthiness of the file. In the context of AML compliance, where the accuracy and reliability of comprehensive datasets are paramount, file-level integrity controls function as sentinels, ensuring the holistic preservation of file integrity.  

In an ideal scenario, integrity controls would be implemented at every stage of the data’s journey. However, at many institutions, AML compliance departments face constraints on the controls they can enforce upstream of the AML compliance technology ecosystem. Nonetheless, the significance of data integrity for AML compliance remains paramount. Proactively identifying and resolving potential integrity issues is crucial for AML compliance programs. This proactive stance ensures that AML compliance is not inadvertently contributing to or bearing responsibility for any compromises to the integrity of the data their AML compliance solutions are meticulously analyzing.  

Why are Data Audits a Critical Part of Data Governance? 

Regular audits also form a critical component of data controls, allowing AML compliance programs to systematically review and assess the quality of data as well as the effectiveness of the controls in place. This proactive approach aids in identifying and rectifying any discrepancies or inconsistencies promptly. The longer an issue remains, the higher the risk to the financial institution. The audits should be reviewing controls such as: access controls, encryption, and lineage tracking to safeguard against unauthorized alterations or errors. While a financial institution’s Chief Data Office (CDO) should be performing many of these functions upstream of AML compliance, it is the responsibility of the compliance department to perform these functions once the data is handed off for ingestion into one of the many AML compliance solutions.  

AML Compliance Programs Must Integrate Data Governance and Controls Into Their Core Pillars 

In the world of AML compliance, the escalating pace and intricacy of monitored transactions and customers underscores the ever-increasing need for financial institutions to implement stronger measures for mitigating the risks hidden within rapidly expanding datasets. AML compliance solutions are evolving to mitigate these risks by becoming ever-more complex, propelled by advanced analytics and artificial intelligence. This increased complexity in analytics, underscores the inherent connection between the effectiveness of an AML compliance solution and the quality of the data ingested.  

Ultimately, data accuracy and integrity have become critical for AML compliance. Not only are regulatory mandates expanding to demand accountability for the information being monitored, but data accuracy and integrity have become a strategic imperative to ensure that investments in advanced AML compliance solutions are fruitful. Robust controls have become critical, spanning individual attribute level quality controls to file-level integrity controls, acting as gatekeepers, preventing bad data, ensuring consistency, enhancing the overall efficiency of AML compliance programs, and decreasing costs through higher quality analysis. 

The integration of data governance and controls into the core functions of AML compliance programs is not merely a regulatory obligation; it has become an indispensable strategic move for financial institutions.  

To read more about NICE Actimize Solutions for Financial Markets Compliance click here.


Unraveling the Threads of Responsibility: Personal Liability of Senior Management in AML Compliance Failures

February 27th, 2024
Rahul Kadu, Senior Specialist Business Consultant, NICE Actimize & Mohit Agrawal, Senior Specialist Business Consultant, NICE Actimize

The World of AML Risk Assessment

February 13th, 2024
Adam McLaughlin, Global Head of Financial Crime Strategy & Marketing, AML

2024 Predictions: Sanctions, FOMO and Corporate Transparency

January 16th, 2024
Adam McLaughlin, Global Head of Financial Crime Strategy & Marketing, AML

The Assembly Canada Recap

November 28th, 2023
Slava Akselrud​, Sales Executive and Subject Matter Expert, NICE Actimize & Autumn Mayo, AML Product Marketing Manager, NICE Actimize
Speak to an Expert