How Openness Unlocks Risk-Free, Open Source Financial Crime Innovation

To be human is to love choice. We choose what to eat, what to wear, where we live, what we do, whom to associate with, and countless other things. From the time we each learn to say “no” in our native tongues, we express our choices on an almost continuous basis.

This desire for choice also extends to the world of software technology options. For many years, choice was limited to what was provided directly by software vendors. Once an organization selected a particular vendor’s software, there was little incentive for the vendor to provide a path for a third-party innovator to work with their software. This restriction on choice imposed by the software vendor left organizations with a frustrating sense of being “locked in” and unable to capitalize on new innovations that could solve evolving business needs. After all, it’s not real choice, after all, if you can’t use it the way you want to, is it?

That’s when open source came along and ushered in the era of choice for software.

Open source software lowered the barrier to entry for organizations and other third parties to develop their own innovations. When combined with cloud infrastructure and software, open source software also made deploying and using their innovations more practical for organizations. The result is a realistic alternative – choice – for organizations seeking to introduce innovation to their systems and processes at a more rapid pace.

So how does open source software help financial institutions fight financial crime?

You don’t have to look hard for financial institution examples like Capital One and Lloyds Banking Group that have made substantial investments in open source software and proudly cite their returns. In the area of financial crime and risk management, substantial benefits are available as well, particularly with respect to the application of advanced analytics, including machine-learning and AI, something  my colleague Damian Matich refers to as Agile Analytics.

Of course, achieving these benefits does not require open source, but leveraging open source as part of the solution makes achieving them much more practical. The general reasons for this include access to:

1. A broad, diverse base of minds for developing and contributing enhancements and related, complementary technologies.
2. A larger pool of experienced talent for support and end use.
3. A licensing model that supports more flexible use and modification to suit different use cases.

The challenge faced by financial institutions that want the choice of using open source software is how to handle the risks of its use in the regulated environments of anti-money laundering, fraud, and financial compliance. While there is general agreement that open source offers benefits, it doesn’t come without tradeoffs, particularly a lack of integrated IP and domain knowledge common to many of the existing solution frameworks already in use. For many financial institutions, ripping out these trusted, proven solution investments in favor of building, managing, and maintaining a completely new approach based on open source software is too risky.

What financial institutions want is a third choice. One that allows them to continue to leverage their existing, trusted investments while introducing a faster innovation pipeline into those investments.

Embracing Openness for Open Source
Solving the problem of balancing the introduction of rapid innovation without introducing additional risk involves the principle of openness. Openness is a term used to describe the qualities of a software platform or framework that allows for the smooth and easy introduction and use of assets developed by a third party within the solution.

The advanced analytics example mentioned earlier offers a great example of how this could be used in financial crime. Instead of waiting for a software update to introduce a new model to an anti-money laundering, fraud, or financial compliance solution, solutions built on the principle of openness would allow models developed by third party tools to be seamless introduced and used as soon as the business validates them.

Since the tools used to build the model are mostly based on open source for the reasons mentioned before, it’s a way to bring the benefits of open source without modifying the current environment. This allows for rapid adaptation to a constantly changing landscape of criminal activity. It’s also more practical for the financial institution, as it is not an update to the entire solution which would likely require a time-consuming and expensive recertification process.

Openness is the Best Choice
Fighting financial crime is important and the benefit to society of doing so are well documented. For financial institutions, making the choice not to do it is never an option. What is a choice, however, is pursuing the options promoting openness, which offers provable, solid results that eliminate business losses and regulatory fines and keep company officers out of court. The choice is not one of whether or not to use open source, but how to best use it to get results that can be trusted.