The Increased Role of Technology in Banking
Risk and compliance are two areas of the utmost importance to the banking industry. Meeting the regulatory needs relating to these functions can be a daunting undertaking. Technology has become a valuable partner to the industry, providing opportunities to automate some of the more repetitive and laborious tasks, boosting efficiency and drastically reducing human error. Banks are under constant attack and having the right systems in place can be a true competitive advantage.
The Challenge of Risk and Compliance
Banks today have become electronic fortresses under relentless siege by money launderers and cyber thieves. Besides the losses they incur from theft, banks must invest significant funds and resources to comply with government regulations to have processes in place to limit and detect crime through Know Your Customer, Anti -Money Laundering, and Customer Due Diligence (KYC/AML/CDD) operations.
Failure to adhere to anti-money laundering protocols can be costly. Surveys show banks are being fined at record levels for not complying with customer due diligence requirements, with a total of $15.13 billion in fines being levied in 2020, and with U.S. banks accounting for 73 percent of those violations.
The outlook is even worse as cyber criminals become ever more sophisticated and banks face rising levels of losses and risk. The amount of money being laundered through the financial services industry is estimated at $6 trillion annually, or between 2 and 5 percent of the global domestic product (GDP). However, studies show that the banking industry’s effectiveness rate in detecting suspicious activities is less than 5 percent, while the total cost for maintaining AML compliance is more than $180 billion annually.
A Herculean Task
Performing due diligence, monitoring the movement of funds, and identifying suspicious activity is difficult and expensive. Compliance regulations require banks to perform background checks that involve collecting and analyzing a massive amount of customer and business information, including the customer’s name, photo identification, address, phone number, email address, occupation, tax identification number, business model, source of funds, beneficial ownership, and more.
Background checks also involve screening against politically exposed person (PEP), session initiation protocol (SIP), Real Capital Analytics (RCA), and global sanction records and lists. Once a customer’s identity, location, and type of business is established, banks typically create customer risk profiles and risk assessments and assign different risk levels and scores to indicate the level of money laundering risk they pose. High-risk customers will require need more in-depth due diligence and more ongoing monitoring than low-risk customers.
Only Getting Worse
Fraudsters and money launderers, meanwhile, are developing ever more complex methods of defrauding banks. This includes taking advantage of synthetic identities, data breaches, the dark web, and faster funds movement. So skilled have cyber criminals become at their art that only 1 percent of their illicit activities result in financial assets being frozen or seized.
The task of detecting and preventing bank fraud has become even more difficult during the COVID pandemic as governments disperse pandemic-relief financial aid with often marginal oversight and as stay-at-home consumers manage their finances and order more of their goods and services online.
Many banks have systems in place that are ill-equipped to perform all of the necessary background and risk scoring actions while keeping pace with the identity masking and laundering cloaking tactics of the cyber criminals in real time. The inadequacy of their detection capability is reflected in the fact that 95 percent or more of the events flagged by banks turn out to be false positives.
Besides relying on manual processes, many banks have outmoded IT infrastructures and lack of intelligent automation systems that make their background checking and real-time detection capabilities too slow and inadequate to catch the cyber criminals.
The Answer Is Intelligent Automation
The good news is that advanced technologies like artificial intelligence (AI), machine learning, Robotic Process Automation (RPA), intelligent process orchestration, and cloud infrastructures give banks a more effective arsenal to combat cyber crime.
Intelligent automation systems raise the bar by eliminating the repetitive, slow, complex, and error-prone tasks that are often performed manually. AI-driven automation can gather information, perform analyses, and identify suspicious patterns more rapidly to enable banks to catch financial crimes as they occur rather than too late.
Intelligent automation systems can run unattended to generate alarms and take action, and can generate visualizations that can help investigators monitor and detect crimes more quickly and effectively. Automation can improve the scoring methods used by investigators to identify fraud, which can reduce the amount of false positive cases and raise the success rate. Automating manual tasks not only improves efficiency, but can free investigators to focus on higher-level fraud detection activities.
Better Infrastructure, Better Results
Because fraud detection is based on gathering and analyzing data, the key to getting the best results is to deploy the most effective and flexible infrastructure for aggregating, integrating, and manipulating data. Many banks fall woefully short in these areas because of outdated IT environments and fragmented data repositories that cannot be easily connected or integrated.
Banks can significantly boost their fraud detection capabilities by modernizing their infrastructures. This includes unifying their data and implementing container-based cloud architectures and agile development environments coupled with intelligent automation and advanced analytics. Flexible architectures that employ continuous development and integration models enable banks to adapt quickly to new technologies, methodologies, and threats as they arise.
Why Roth Automation for KYC/AML/CDD Automation?
Roth Automation’s expert consultants and engineers have years of experience designing, deploying, and optimizing business automation processes for national and global banking institutions. Our expertise can assist you modernizing and optimizing your infrastructure and applying intelligent automation to more effectively perform KYC/AML/CDD operations.
To learn how your organization can benefit from intelligent automation applied to KYC/AML/CDD operations, speak with our expert consultants today.