It's Time to Unite Money Laundering and Fraud Prevention Efforts

By Karen Van Ness, Oracle Financial Services Software In the last year, the financial services industry received a rousing reminder of the profound damage that increasingly complex financial schemes and fraud can inflict on their reputation and bottom line. Analysts estimate that financial crime costs industry organizations approximately $20 billion in losses, annually. At the same time, banks are grappling with expanding anti-money laundering (AML), fraud prevention and risk managemen

By Karen Van Ness, Oracle Financial Services Software

In the last year, the financial services industry received a rousing reminder of the profound damage that increasingly complex financial schemes and fraud can inflict on their reputation and bottom line. Analysts estimate that financial crime costs industry organizations approximately $20 billion in losses, annually. At the same time, banks are grappling with expanding anti-money laundering (AML), fraud prevention and risk management regulatory requirements, and spiraling compliance costs associated with those initiatives. In this environment, many organizations are reevaluating their compliance and fraud prevention programs and increasingly pursuing an integrated approach to achieve the operational and cost efficiencies critical to maintaining profitability.

By consolidating AML compliance and fraud prevention efforts, financial institutions stand to gain a vital holistic view of enterprise data across lines of business, channels and products, resulting in a better understanding of the full impact of financial crime on the institution, as well as improved return on investment for risk and compliance initiatives. For example, by improving coordination between compliance and fraud analytical teams, organizations can leverage strategic operational synergies to gain cost savings and efficiencies for transaction monitoring programs. From a customer management perspective, an integrated approach to AML compliance and fraud prevention can support customer retention in an era in which it is most vital. Security and trust remain paramount in the minds of the today's consumer, so a reputation for strong compliance, security and risk management can go a long way toward cultivating customer trust and confidence, which, in turn, bolsters client retention.

Centralizing AML and fraud prevention also enables financial institutions to expand reporting capabilities to increase the efficiency and accuracy of monitoring efforts. A consolidated approach can help to cut the number of defensive filings of suspicious activity reports (SAR's) and yield higher quality reports for law enforcements.

While these benefits are attractive, many banks face hurdles - primarily related to their legacy IT and organizational structures - that prevent them from capitalizing on the potential benefits of a consolidated approach. Historically, many financial institutions have installed point solutions for AML and fraud prevention supported by siloed data marts, with limited data visibility across teams. Also, in many institutions, the AML compliance and fraud mitigation teams are separate entities that each develop, maintain and leverage their own watch lists. Collaboration across these teams generally occurs on an ad-hoc basis, with each department sharing information across teams infrequently and informally. To begin the process of breaking down silos, organizations must first make a commitment to, at the very least, improving and establishing ongoing, formalized communication across AML and fraud prevention teams.

Organizations can then begin to address the IT infrastructure issues, starting with the creation of a single, common data repository for AML and fraud-related information. There is a high correlation of data used for both AML compliance and fraud prevention efforts. Both programs often consider the same products, transaction types and channels as high-risk items that require close monitoring. A consolidated approach enables organizations to easily acess a more unified view of fraud and AML risks and eliminates duplicate monitoring efforts for high-risk elements.

Financial institutions can further increase operational efficiency by re-using scenarios and detection models for both AML compliance and fraud detection, as AML scenarios may also be indicative of fraudulent behaviors, and vice versa. Organizations can repurpose AML scenarios for fraud detection by adding fraud-specific parameters for detection and risk scoring to leverage common data requirements and reduce the costs and time previously spent to on-board new scenarios. A consolidated approach also enables financial institutions to intelligently and quickly aggregate and correlate related entities and alerts. By centralizing data access, organizations have the power to generate more targeted and actionable fraud and AML alerts, as well as manage and investigate alerts and cases in a more efficient manner.

By taking these steps, institutions will also benefit from more flexible workflows to facilitate easier hand off of alerts, cases and investigations, as well as greater sharing of leads and information between AML and fraud teams. A centralized monitoring approach also supports load balancing across teams to meet changing business and regulatory needs and mitigate the risk of inadequate coverage.

Banks that approach AML compliance and fraud mitigation operations in tandem can rapidly realize the benefits of a consolidated approach. For example, a leading U.S financial institution recently implemented a centralized case management solution that enabled its AML and fraud departments to share information across a single system. After its initial deployment, the institution quickly realized increased efficiencies in its AML and fraud prevention operations by minimizing the workload associated with alert notifications, decreasing alert decisioning time and reducing duplicate case activities. The centralized system also enabled the bank to take a more holistic approach to its client relationships by providing its AML and fraud departments with access to the full history for each customer, and improved collaboration across the AML and fraud teams by facilitating discussion of common information within the system. The bank plans to extend the value of its investment by leveraging the case system to enable pattern detection and link analysis that will help the bank's fraud team identify new types of risk and strengthen its overall efforts to combat financial crime.

In the coming year, financial institutions will almost certainly continue to face a host of new AML and fraud threats as well as new levels of regulatory complexity. An integrated approach to financial crime and compliance management will empower institutions with the visibility and flexibility they need to efficiently mitigate known and emerging criminal threats and support critical efforts to ensure public trust and confidence.

Karen Van Ness is senior manager for product management at Oracle Mantas, part of Oracle Financial Services Software. She has 20 years of experience in the information technology and financial services industries. At Mantas, she has helped bring to market Mantas solutions targeted at AML and fraud, and supported implementations at top-tier banking and brokerage firms in the US and internationally.