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Banks’ Quality of Risk Management Boosts Core Effectiveness and Efficiency
A strategic shift towards predictive risk management is transforming the way banks operate, enhancing their ability to detect and prevent financial crimes. By adopting a holistic approach that combines fraud, cybersecurity, and anti-money laundering (AML) functions, institutions can significantly improve their protection against threats.
Predicting Risk Rather than Reacting
To stay ahead of criminals, banks must redesign their customer and internal operations to anticipate where threats will arise. This requires a continuous assessment of actual cases of fraud, financial crime, and cyberthreats, as well as an understanding of how criminals behave. By adopting this mind-set, banks can design controls around processes rather than points, improving both efficacy and effectiveness.
Efficiencies through Integration
The integrated fraud and cyber-risk functions can improve threat prediction and detection while eliminating duplication of effort and resources. Clarified roles and responsibilities ensure no gaps between functions or within the second line of defense. Consistent methodologies and processes help build understanding and ownership of risks.
Data, Automation, and Analytics
By integrating data from separate functions, banks can enhance customer identification and verification, as well as predictive analytics. Artificial intelligence and machine learning enable rapid insights into correlations between credential attacks, account takeovers, and criminal money movements. This reduces false positives in detection algorithms, lowering costs and allowing investigators to focus on actual incidents.
Enhancing Customer Experience and Digital Trust
The integrated approach to fraud risk can also result in an optimized customer experience, with improvements in customer satisfaction helping shape customer behavior and enhance business outcomes. By segmenting fraud and security controls according to customer needs and using automation and digitization to enhance the customer journey, banks can foster digital trust, a critical differentiator.
A Holistic View of Financial Crime
The transformed operating model provides a holistic view of the evolving landscape of financial crime, emphasizing the importance of independent oversight and challenge through clear roles and responsibilities. Institutions must integrate business, operations, security, and risk teams for efficient intelligence sharing and collaborative responses to threats.
Best Practices for Banks
To achieve a unified fraud-risk operating model, banks should:
- Integrate cybersecurity and fraud units
- Enhance information sharing and coordination across silos
- Redefine organizational “lines and boxes” and utility
- Set up a holistic center of excellence or combine operations into a single global utility
By adopting these best practices, banks can significantly improve their risk management capabilities, reducing costs and enhancing customer trust.