Customer Information Data Management Systems
New technologies help improve compliance with AML laws and reduce costs
Financial crimes are a big business. These type of misdeeds run about US$1.6 trillion annually, according to The Financial Action Task Force, an international body that helps banks combat financial crimes.1 Legislative bodies across the globe enact ever-more-stringent anti-money laundering and financial compliance laws. These include the Bank Secrecy Act in the United States and the Fourth Anti-Money Laundering Directive in the European Union. Since the 2008 financial crisis, regulators, particularly those in the United States, have levied record fines against financial institutions trading, even unwittingly trading, with sanctioned parties and countries, or otherwise failing to comply with AML regulations.
Fines come with the dubious comfort of a dollar amount. Damage to reputation can be harder to quantify. Still, an analysis published by the Center for Economic and Policy Research indicates that reputational costs — as reflected in stock market reactions to fines — are "on average nine times larger than the financial penalties imposed by regulators."2
To learn more about technologies that can help improve compliance while reducing compliance costs, read Don't Blame the Transaction Monitoring System, a Forbes Insights white paper sponsored by Pitney Bowes®.
Compliance challenges and solutions
Financial institutions often find that existing technologies aren't up to the task of complying with increasingly stringent AML laws. For example, transaction monitoring systems (TMSs) typically return far too many false positives. In fact, Pitney Bowes estimates the rate of false positives at 95 to 98 percent of all alerts. Resolving these benign alerts needlessly consumes investigators' time, and wastes the financial institution's money. Conversely, because TMSs take a microscopic, event-driven view of each transaction, they often can't identify the tangled mix of synthetic IDs, false addresses, shell companies and deliberately clouded relationships money launderers use to hide their identities.
To improve the efficiency and efficacy of AML processes, financial institutions need a better system. Pitney Bowes Entity Resolution for Financial Crimes and Compliance is one such solution. It builds on Spectrum® customer information management software and advanced algorithms to find, link and visualize information.
The software solution first finds customer information throughout disparate, siloed systems and departments within the financial institution. It scours retail banking, credit card, mortgage, business and investment accounts, among others, to automate the process of compiling a comprehensive profile of each customer — and of the external parties with whom the customer does business. The solution then leverages the Pitney Bowes worldwide database of millions of addresses, names and name variations to link records to unique parties and to determine relationships among parties. This linkage eliminates the need for investigators to manually reassemble long digital or paper trails to uncover information about a specific bank customer and the entities in the customer's network. Information is then presented to investigators in a graph database, or a database that uses graphs to map relationships. Graph databases make it easier for investigators to visualize relationships so that anomalies can be more easily identified.
As a result of deploying Entity Resolution for Financial Crimes and Compliance solutions, organizations can typically:
- Reduce false positives: This is achieved by grouping related alerts and recognizing patterns for legitimate transfers.
- Improve detection of false negatives: By recognizing the underlying relationships among accounts, even seemingly unrelated, below-threshold transactions can be linked and examined.
- Reduce overall costs: Fewer false positives and easier investigations mean compliance officers waste less time and fewer resources resolving alerts.
To learn more about the technologies that can help you improve AML efforts, download this Forbes Insights white paper, sponsored by Pitney Bowes:
1. What is Money Laundering? The Financial Action Task Force, 2016.
2. Financial market wrongdoings: Fines vs. reputational sanctions, Armour, J., Mayer, C., & Polo, A., March 2016