Financial institutions, such as banks, funds and insurers rely on automated systems to fulfil their obligations for continuous transaction monitoring, in order to detect unusual transactional behaviours.
Those monitoring systems get set up and programmed with the relevant rules, meaningful customer segmentation and adequate risk-based thresholds, dependently on the availability of up-to-date customer data, the understanding of the institution’s specific money laundering and terrorist financing risks.
When this calibration is not effective, financial institutions get large alert volumes anda large number of false alerts that each require manual intervention, so much that some now employ up to 3% of their workforce to track financial crime.
The practical guidance for transaction monitoring provided by current regulations is limited: financial institutions are left with the discretion, and burden, of defining their approach in isolation.
In the UK the Joint Money Laundering Intelligence Taskforce (JMLIT) was established in May 2016, with partners in government, the British Bankers Association, law enforcement and over 20 major UK and international banks under the leadership of the ‘Financial Sector Forum’.
Same as criminal methodologies mutate constantly, so do, for example, flu viruses: the drug manufacturers adapt their vaccines constantly, in order to ensure their effectiveness according to the results of the most relevant strains of virus, provided by the WHO’s Global Influenza Surveillance and Response System (GISRS) Network, a partnership of hundreds of national influenza centres in many different countries, which analyse viral evolutionary trends and predict strains for the production of vaccines.
UK’s Joint Money Laundering Intelligence Taskforce (JMLIT) currently is keeping under continuing review 4 key operational priorities to understand and disrupt:
- funding flows linked to bribery and corruption;
- funding flows linked to organised immigration crime and human trafficking;
- trade-based money laundering;
- key terrorist financing methodologies.
This can provide guidance on new methodologies to address such threats, instead of reviewing the threats activity in isolation.
In the meanwhile, having access to customer and transaction data in one place and being equipped with the right technical equipment would make a noticeable difference for financial institutions’ alert handling teams.
Progressive organisations are considering the possibility to use automation to reduce manual effort and cost in the alert handling process, with algorithms for automated decisions that use complex analytical techniques to assess alerts against the historical analyst decisions. Technology will have to replicate the analysts’ behaviour accurately and financial institutions will require a small team of analysts anyway, to review alerts to provide a knowledge-base for systems to learn from. Evidence will have to be articulated in a way that can be understood by management, regulators and the wider public.
“Smarter” rules should also reduce the number of false positives, combining data analytics solutions with a real understanding of criminal activity, of the risk within the firm and what the transaction monitoring rules are looking for and the risk assessment of what is not being examined.
Optimising the transaction monitoring systems will provide a clear value and the challenge now is re-imagining the future to create a better world.
