Banks’ Alert Handling Process Under Scrutiny: Risks, Integrity, and Data Quality

In recent times, banks have been re-examining their alert handling processes to strengthen their anti-money laundering (AML) and combating the financing of terrorism (CFT) controls. The focus is on identifying and mitigating risks, ensuring data quality, and aligning with regulatory requirements.

Risk Assessment and Integrity

Banks’ risk assessments have identified several risks that require attention in the alert handling process:

Explicit relation to the bank’s integrity risk appetite: This includes understanding the level of risk that the bank is willing to take on.
Files in scope for Autoclosure: This may lead to refinement of the alert risk profile, which could impact complex clients that require extensive expertise from staff.

Data Quality and Actualization

To ensure data quality, banks are striving to maintain complete and correct client data within their risk appetite. This involves:

Regular monitoring and feedback loops: This helps to identify and correct any errors or inaccuracies in the data.
Actualizing data based on rule- and/or model-based alerts and events: This ensures that the data is up-to-date and reflects the current situation.
Retrieved from external sources, internal analysis, or client outreach: This helps to gather additional information and ensure that the data is accurate.

Alert Triage and Handling

Banks’ detection mechanisms generate alerts and events, which are then triaged to determine the depth, method, and prioritization of follow-up action. This includes:

Assessing whether the generated alert and event relate to an actual identified ML/TF risk: This helps to determine if further action is required.
Determining the relevance of new risks: This helps to identify potential threats and take appropriate action.

Comprehensive Reviews and Risk-Differentiated Handling

Comprehensive reviews involve manual assessments of clients’ complete situations, while risk-differentiated reviews focus on ML/TF risks related to alerts and events. Analysts assess:

The relevance of new risks: This helps to identify potential threats and take appropriate action.
If risk classification and mitigating measures still fit the client profile: This ensures that the client’s risk profile is up-to-date and accurate.
The effectiveness of risk detection mechanisms: This helps to identify areas for improvement.

Conditions for Risk-Differentiated Reviews

To apply risk-differentiated reviews, banks must document procedures and working instructions. Conditions include:

Substantiation of the conditions under which the bank wants to apply these reviews: This ensures that the reviews are conducted in a fair and transparent manner.
Periodic ex-post checks to assess whether conditions have been met in practice: This helps to identify areas for improvement.

Ongoing Due Diligence

Banks are required to continuously improve their ODD processes by refining their risk-based approach, ensuring data quality, and aligning with regulatory requirements. This includes:

Defining the relation to other existing processes or controls: This ensures that the ODD process is integrated with other relevant processes.
Refining their risk-based approach: This helps to identify potential threats and take appropriate action.

Conclusion

In conclusion, banks’ alert handling processes are under scrutiny due to the importance of identifying and mitigating risks, ensuring data quality, and aligning with regulatory requirements. By refining their risk-based approach and implementing effective ODD processes, banks can strengthen their AML/CFT controls and maintain a robust defense against financial crimes.