Tobias Bumm/ October 15, 2019/ Uncategorized

Digitization is progressing faster and faster. Time periods between new Compliance requirements (e.g. EU-AML Directives) are decreasing frequently. In a digital world where every other day a new e-commerce or payment platform pops up and innovative financial products are designed, the opportunities for financial crimes are increasing at least at the same speed.

AML checks are not only about checking or knowing your own customers anymore. A single money transaction received by a bank (or any financial intermediary) is a chain of transfers around the globe via many platforms.

Financial intermediaries and their compliance departments have to implement new requirements as quick as possible and advance their rule-based AML checks with new scenarios and methods. Nevertheless, the rule-based checks are only helpful, when the patterns are clearly defined. Meaning, you know exactly what to look for. Therefore, most AML tools are running once a day after all transfers are finalized.

“By 2020, it’s estimated that 1.7MB of data will be created every second for every person on earth.”

It would be interesting to know how much of this data would be relevant for the financial industry. However, simple examples of social media and e-commerce are already hinting towards the amount of data the financial intermediaries should be expecting. Criminals will take advantage of such data. The fraudulent actions are changing as fast as data is streaming. With such high speed, the financial intermediaries are (and should) be faster than regulators to implement new techniques to detect and prevent financial crimes.

Furthermore, AML is adding checks to fraud detection with real-time transaction monitoring. Machine learning (ML) and / or Artificial Intelligence applications broaden the spectrum of compliance checks. Already, some tools are running with ML technologies and even providing the possibility to update rule-based checks in real-time without any downtime. By applying methods of data and predictive analytics, the compliance departments are advancing their capabilities to monitor and screen customers and transactions not by applying predefined rules, but rather by learning and verifying new patterns through data.

On this side of the coin, data is the most precious asset creating new opportunities for compliance. On the other side of the coin, there are silo-data pools within historically grown IT- landscapes. Data quality is critically low containing missing, false and old data. Facing a high-speed digital transition and a flood of regulations after one of the worst global financial crises, not every institute in the financial industry had the chance to be technologically prepared for the challenges and could not clean up historically “messy” technical architectures in a timely manner.

The biggest challenge is that, the new technologies must be implemented fast and while the daily business runs on the existing system.

From the technical point of view, the path to open banking holds step-by-step instructions for a healthy transformation.  Not going into the discussion of the necessity of open banking, the idea behind this concept requires integration of many technical components, which will in turn open great opportunities for the ongoing business of financial institutions. Think about the following scenarios:

  • How would it be, if all the information you need came harmonized from an integration layer, which consolidates and reconciles customer-, business- and payment-data, etc. and documents their origin?
  • How would it feel, if you (on the enterprise side) and your customer (on the business side) could log in once via a strongly secured account management and access all you need based on documented role-based access management?
  • How much could you advance your daily business having analytically processed results of your necessary data on hand, providing highlights worth focusing on, which otherwise may have gone unnoticed?

Implementing these scenarios definitely takes time. Nevertheless, as time goes by changes become more expensive and complex. Fortunately, this challenge has already brought some banks and FinTechs together. Opensource technologies, mostly originated with experiences from other industries contribute to the “evolution”. Some leading financial institutions have also gained momentum and many others follow them. More success stories will sure be heard and broaden the spectrum of the accelerating transformation in the financial industry including compliance management.


Photo by Markus Spiske on Unsplash