Financial Crime World

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Financial Institutions Embracing Automated Quality Control and Human Review to Boost Fight Against Financial Crime

In an effort to improve their effectiveness in detecting and preventing financial crime, major banks are transitioning away from manual, procedure-driven approaches to financial-crime compliance (FCC) and anti-money laundering (AML). Instead, they are adopting an investigator-led approach that leverages automation and human review to enhance quality control and reduce the risk of false positives.

The Need for Change

According to experts, the traditional FCC/AML model has reached a dead end. Banks have invested heavily in manual processes and technology, but these efforts have yielded limited results. In fact, most activities today result in false-positive rates of 90% or more, with the majority of work being unnecessary in identifying and mitigating financial crime.

Streamlining Operations

To reverse this trend, banks are streamlining their current operations to free up resources for more valuable activities. This involves reviewing all FCC/AML activities and stopping those that are not required by regulations or beneficial to law enforcement. Banks are also automating manual tasks, particularly in information and documentation management, to reduce the strain on resources.

Benefits of the New Approach

The benefits of this approach are significant. By improving effectiveness, banks can process far more proscribed activities, reducing the risk of financial crime and enhancing public confidence in the financial system. The approach can also elevate the profile of financial institutions as socially responsible actors, leading to improved environmental, social, and corporate governance profiles and higher shareholder value.

Partnerships and Collaborations

To achieve these benefits, banks are building partnerships with external organizations, including:

  • Law enforcement agencies
  • Other financial institutions
  • Tax-collection agencies
  • Shipping companies
  • Airlines
  • Social-media companies
  • Nonprofits

These collaborations enable the sharing of intelligence and information, helping investigators understand institutional exposures to parties involved in proscribed activities.

Public-Private Partnerships

In addition, banks are creating public-private partnerships to improve information flow and intercept prohibited activities. For example:

  • The Joint Money-Laundering Intelligence Taskforce (JMLIT) in the United Kingdom involves more than 40 financial institutions, the Financial Conduct Authority, Cifas, and five law-enforcement agencies.

Regulatory Encouragement

As regulators increasingly encourage innovation in FCC/AML, banks are taking up the invitation to test new approaches. By embracing automation and human review, they can reduce the risk of false positives, improve detection rates, and enhance their reputation as socially responsible actors in society.

Key Takeaways

  • Banks are shifting away from manual, procedure-driven FCC/AML approaches to investigator-led models that leverage automation and human review.
  • Streamlining current operations can free up resources for more valuable activities, improving effectiveness and reducing false positives.
  • Partnerships with external organizations are essential for sharing intelligence and information to detect financial crime.
  • Public-private partnerships can improve information flow and intercept prohibited activities.
  • Regulators increasingly encourage innovation in FCC/AML, providing a safe harbor for testing new approaches.