Breaking Down Silos to Combat Financial Crime
In Japan, the fight against financial crime demands more than just monitoring transactions for suspicious behavior. It requires a proactive approach that involves collaboration across departments and a holistic understanding of customer risk exposure.
The Problem with Silos
According to a recent poll conducted at a roundtable event hosted by NICE Actimize:
- 56% of regional banks in Japan reported working in silos during investigations.
- Only 22% had a fully integrated financial crime function.
This fragmented approach can lead to inefficiencies and a higher risk of non-compliance. To combat this, experts recommend building cross-functional compliance and investigations teams with shared goals of minimizing anti-money laundering (AML) and combating the financing of terrorism risks.
The Importance of Cross-Functional Teams
These teams should be led by a head of financial crime and utilize common systems for data sharing and interaction. As Matthew Field, an AML specialist at NICE Actimize, notes:
“A number of top-tier investment bank clients have moved towards a more holistic view of combining compliance, fraud, and AML… These teams are built on strong partnerships between the first- and second-lines of defense, utilizing a common system through which to interact.”
Categorizing Customers Based on Risk
To categorize all customers into low-, medium-, and high-risk tiers, banks should update their requirements and profiles based on ongoing client behavior and related alerts. This proactive approach can help demonstrate to regulators that they are managing AML risk using best practices.
Technology Plays a Crucial Role
As the volume of data continues to increase, technology platforms are stepping in to alleviate the burden on staff. Automated processes, including machine learning and artificial intelligence (AI), can:
- Help reduce false positives, which typically account for more than 70% of alerts.
- Enhance operational efficiency by utilizing common databases with consistent terminology and classification protocols.
As Field notes:
“New regulations are now forcing financial services institutions to adopt better practices and new technologies… It is difficult—but not impossible—with the right tools and the right approach.”
A Shift in Mindset is Necessary
As criminals become more sophisticated, traditional rules-based approaches to AML are less likely to be effective. Experts recommend:
- Stricter initial diligence during client onboarding.
- Ongoing monitoring.
- Adjustment of risk score criteria.
A proactive risk management strategy leveraging the latest technology, including AI-based transactions and machine learning-enhanced processes, is also essential. However, perhaps most importantly, it all starts with a shift in mindset. Financial institutions must recognize that combating financial crime requires a collaborative effort across departments and a commitment to using the latest technology to stay ahead of sophisticated criminals.