Connecting Your Organization to Drive Cost Transformation

The release of the FinCEN files in 2020 is going to leave its mark on the financial services industry and our financial crimes programs for some time to come. The exposé showcased to the world that our current financial system continues to be vulnerable to bad actors that move illicit funds all over the globe.

The FinCEN files have already started having an effect across the globe, including more public scrutiny, changes to regulations, new investigations, and calls for more transparency and accountability. This is going to put more pressure on regulated institutions as in-house financial crime programs will need to demonstrate risk frameworks that show a certain level of maturity, show consistency in processes and ability, and ensure that executive leaders will be more directly accountable to the financial activities that make use of their institutions.

Connecting the Organization with Case Management

There is no debate that having a single view of financial crime risk is extremely helpful when investigating potential crimes. It’s a huge benefit when we’re able to give our analysts and investigators immediate access to information about customers, their account history, and tools to investigate links to related entities. Intelligence helps our analysts and investigators make better decisions. These better decisions that can prevent terrorist financing, prevent trafficking, short-circuit fraud attempts, and stop money laundering. How can anyone argue against that?

However, many institutions run the risk of having a “failure of intelligence” by lacking the ability to connect the dots. Many financial services organizations are structured in a way where information is very disconnected, which creates intelligence gaps that impact the analysts and investigators working on financial crime – whether it is KYC, AML, sanctions, fraud prevention, or trade surveillance. Historically, systems have been set up to serve different purposes across multiple dimensions—business lines, financial products, risk domains, front-office versus back-office, and geography. This has resulted in a siloed mess since many of these systems do not necessarily talk to each other.

Fraud units tend to have multiple systems that are used to manage different financial products and channels. Financial products tend to be change across the many business lines, such as retail, commercial, investment, wealth, treasury, and can include payment types that are clear and settle in real time or in days, such as wires, checks, ACH, SEPA, P2P and RTP.

KYC and customer due diligence systems tend to be aligned to the business lines and product types, while AML transaction monitoring and sanctions tend to be more a corporate back-office function.

Trade and communication surveillance requires communications, recording and archival systems to meet compliance requirements. Similarly, tools deployed to support this are typically aligned to the different trading desks for each asset class and by jurisdiction.

Siloed risk operations teams are challenged to make decisions quickly and accurately but may not all have a comprehensive set of information available to them. They may not see the related risks for a transaction, customer, counterparty, a relationship, the account or a related account if they are not manually reaching out to a colleague in another part of the organization. This leads to inconsistency in processes and time consuming manual efforts when investigating and identifying financial crime risk.  The situation is not necessarily dire. The opportunity to consolidate this information does exist and having a standardized enterprise case management system to centralize the risks and related information will not only make a single view of risk a reality, but it will also bring process standardization to all of the operations teams, while maintaining the best detection systems in each risk domain area.

Driving Cost Transformation with Case Management

The other challenge with risk and compliance operations is that it is always under pressure to do more while simultaneously cutting costs. In a recent ACAMS Compliance Effectiveness and Risks Survey, almost a third of the respondents believe the FinCEN leaks will lead to more regulatory scrutiny, and many financial institutions voluntarily improving their compliance programs. Disconnected systems and technologies are directly impacting the operational excellence demanded of financial crime teams. Now is the opportunity to consolidate systems and to drive efficiencies with significant savings.

This situation calls for application rationalization, a strategic exercise to identify business applications across an organization to determine which should be kept, replaced, retired, or consolidated. This exercise identifies systems that would be categorized as part of the “long tail”—systems that are redundant or not strategically important—that can be eliminated providing savings related to IT hardware, software and costs related to personnel maintaining these systems. “Long tail” systems would typically identify less important legacy systems and point solutions. At the same time, the application rationalization exercise identifies the core strategic, high-value enterprise assets that the business should invest in.

One core strategic enterprise asset that all AML, fraud and surveillance teams use is an investigations and case management platform. This is the “common denominator” that provides a holistic single view of risk, manages workflows, supports investigations and ensures oversight. Investing in one centralized case management system will certainly save the interested financial institution on its run-the-bank costs.

Besides the overall cost savings, the other potential benefits are:

• Process standardization provides consistency and auditability
• Completeness of financial crime risk information helps analysts and investigators collaborate and make better, faster decisions
• Leveraging analyst and investigator feedback for AI detection models

In fraud management, consolidating systems and information into one enterprise alerting and investigations platform can help release payments faster and quickly approve applicants for financial products, creating a better overall customer experience. Consolidation provides more completeness of customer data and cyber-intelligence across the different financial products and channels. A centralized case manager can also support a streamlined SAR filing approach and auto-populate forms, all in coordination with the AML team. One enterprise case management platform also helps the operational workflow for KYC, AML and sanctions teams align to risk policy and frameworks, create better governance, improve management oversight and reporting, and ultimately provide senior management confidence in their compliance program. This means uniting the information between the front-offices and back-offices to provide a true holistic view of customer risk. Trade compliance will similarly benefit for the same reasons. Additionally, a centralized case management platform will connect the different trading desks to access consolidated communications and see linkages between employees and related accounts.  Trade compliance can also benefit from better visibility of securities that are traded in multiple jurisdictions across the globe by ingesting trade information to a central case manager, even when the trade information is monitored in different systems and residing in different locations.

Getting Started

In all likelihood, your information technology leaders are already looking at ways to eliminate business application redundancies. Consolidating on one enterprise case management platform is obviously easier said than done, but the financial benefits can be staggering. While financial institutions will have to continue to spend to run day-to-day operations, they will be looking to cut costs and make investments to help recoup this expenditure.

Here’s how to get started:

1. Work with your IT team on starting the application rationalization exercise.
2. Start an inventory of all the systems used across financial crime.
3. Document what internal systems are used, who uses them, what they’re used for, and what they’re connected to.
4. Document what external systems are used, who uses them, what they’re used for, and what they’re connected to.
5. Look for commonality and categorize the system into a) strategic investments; and b) elimination candidates.

In this article, we discussed the benefits to connecting your organization to create a single view of risk to drive cost transformation. In future installments of this series, we’ll look at

• Empowering your people – enabling analysts and investigators to make better and faster decisions by using entity-centric views and applying automation.
• Optimizing your teams – measure and monitor the operations of each risk domain and fine-tuning to ensure quality and consistent results.