Increased Integration Can Improve Risk Management for Banks

A new approach to risk management is gaining traction among financial institutions, as banks recognize the importance of integrating their fraud, financial crime, and cybersecurity functions. By adopting a unified operating model, banks can improve threat prediction and detection, reduce duplication of effort and resources, and enhance customer experience.

Traditional Approach Falls Short

The traditional approach to risk management often focuses on point controls or silos, which can be ineffective in today’s rapidly evolving landscape of financial crime. To stay ahead of criminals, banks must adopt a holistic approach that considers the entire customer journey and designs controls around processes rather than points.

Key Benefits of Integration

• Improved threat prediction and detection by bringing together disciplines such as authentication and voice-stress analysis
• Enhanced efficacy and effectiveness through integrated operational processes and continuously updated risk scores
• Ability to dynamically update views on the riskiness of clients and transactions

Data, Automation, and Analytics Play a Critical Role

• Integration of data from separate functions, both internal and external sources, enhances customer identification and verification
• Artificial intelligence and machine learning can better enable predictive analytics when supported by aggregate sources of information
• Data-driven insights improve decision-making and risk assessment

Optimized Customer Experience

• Integration of fraud, financial crime, and cybersecurity functions can result in an optimized customer experience through:
  • Segmented fraud and security controls according to customer needs
  • Automation and digitization to enhance the customer journey
  • Improved customer satisfaction and digital trust

Unified Risk Management Approach

A unified risk management approach requires a holistic view of the evolving landscape of financial crime, emphasizing the importance of independent oversight and challenge through duties clearly delineated in the three lines of defense. Ultimately, institutions must integrate business, operations, security, and risk teams for efficient intelligence sharing and collaborative responses to threats.

Achieving Integration

To achieve this target state, banks must probe questions about:

• Processes and activities
• People and organization
• Data and technology
• Governance

Many banks begin by closely integrating their cybersecurity and fraud units, but a few have attained a deeper integration of all operations related to financial crimes. A leading US bank has set up a holistic “center of excellence” to enable end-to-end decision making across fraud and cybersecurity, while a global universal bank has combined all operations related to financial crimes into a single global utility.

Benefits of Integration

• Reduced operating costs
• Improved risk effectiveness
• Enhanced customer experience

Conclusion

As criminal transgressions in the financial-services sector become more sophisticated, banks must rethink their approaches to take advantage of the synergies available in integration. By adopting a unified operating model, banks can consolidate fraud, cybersecurity, and AML under a holistic approach based on the same data and processes, ultimately improving risk management and protecting customers.