In a world of geopolitical unrest, macroeconomic uncertainty, rising digital crime, and rapidly changing regulatory environments, financial services firms are expending tremendous monetary and human resources to satisfy compliance requirements while attempting to maintain business growth and positive customer experience. Within the context of a multipolar world order, financial crime compliance poses a unique challenge for global financial institutions as nation-states with diverging national or regional interests use varying degrees of economic sanctions and financial regulations to stymie financial flows for adversarial counterparties. Compliance professionals today are tasked with navigating this ever-changing complex web of regulations and national interests to steer their firms to a compliant posture. To meet these challenges, compliance professionals must disrupt legacy processes and proactively seek technological solutions to adequately manage risk and improve efficiency. Specifically, compliance professionals should leverage technology to strategically automate manual processes, redirect staffing priorities to focus on rare subject-matter expertise and improve customer experience.
A June 2023 study conducted by Forrester Consulting titled “True Cost of Financial Crimes Compliance Study” found that financial crimes compliance globally costs financial institutions $206 billion annually. Survey respondents in North America reported spending $61 billion on preventing financial crimes. The transition to digital banking has accelerated the velocity of financial crime and increased available methods such as digital payments, cryptocurrencies, and AI for perpetrating crimes. These technologies, coupled with increasingly complex regulations, put tremendous pressure on compliance professionals to manage risk while limiting costs. Strategically automating manual processes and thinking critically about a risk-based approach can yield many cost-reducing outcomes. 85% of respondents in the same survey reported lowering compliance costs as a top priority over the next twelve months. Below are three examples of where disruptive thinking coupled with technology can reduce costs and improve focus on pertinent risks.
1. Customer verification automation: financial institutions still relying upon collecting driver’s licenses or passports for verification purposes should research widely available tools that verify customer information using public and government databases; institutions should also consider tools that allow users to take selfies and provide information on their IP address and geographic location. These real-time data points provide reliable methods of identity verification while also minimizing risks for fraud patterns involving account takeover or identity theft. Automation of customer verification alleviates staff from performing manual document checks and helps refocus capacity on problematic applicants or activities.
"Compliance professionals today are tasked with navigating this ever-changing complex web of regulations and national interests to steer their firms to a compliant posture"
2. Suspicious Activity Reports (SAR) writing: AI-enabled Large Language Models (LLMs) such as ChatGPT or Google Bard can be integrated into enterprise systems to develop first drafts of SARs. Firms can also build tools internally to automate basic KYC and customer transaction summaries to present to investigators when a customer requires an SAR. These simple enhancements significantly reduce investigation times and direct investigators to high-risk activity warranting attention.
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3. Automate customer profiles: investigators often spend valuable time collecting basic KYC information on customers prior to analyzing the core alerted activity. This information is usually also summarized as part of the alert write-up. Institutions should research methods to leverage existing tools to incorporate basic customer profiles as part of the alert. There are many vendor solutions readily available in the market that perform this function, or institutions can build these processes internally without incurring significant costs. Firms should also consider highlighting transactions that triggered the alert and identify the cause of the alert. These enhancements help direct investigators to target high-risk activity while improving efficiency by reducing the time needed to complete and document an investigation.
In addition to improving efficiency, leveraging automation can help executives focus limited resources on acquiring talent with specialized expertise. Unsurprisingly, given the increasing pace of new regulations and evolution in financial crime typologies, attracting and retaining staff with critical subject-matter expertise remains a challenge. Highly skilled staff with specialized expertise are less inclined to remain in operational environments that continually require the performance of mundane tasks such as SAR writing or customer verification. These professionals are cognizant as well as adept at utilizing widely available automation tools and more eager to deploy their specialized skills to analyze complex fact patterns or provide strategic guidance on programmatic changes. Staff with niche expertise can help firms tailor programs to monitor for risks pertinent to their business models and lower costs by eliminating unnecessary processes. Executives managing financial crimes compliance programs must think rigorously before adding staff to perform routine tasks and perform the cost-benefit analysis of automating such processes. 33% of respondents in a 2023 study conducted by Thomson Reuters titled “2023 Cost of Compliance” expected their compliance staff to increase over the next 12 months. Hiring should focus on attracting senior professionals with specialized expertise who can help critically approach existing processes and rely upon their knowledge to recommend narrowly tailored risk-based solutions.
Most importantly, compliance professionals should think creatively about leveraging automation to improve existing processes to enhance customer experience. 85% of respondents in the Forrester Consulting study cited improving customer experience as a top priority for their firms. Customer experience depends on providing fast, reliable, and trustworthy service. Institutions that refuse to adopt digital trends will inevitably fail their customers in providing up-to-date payment solutions and potentially expose customers and their assets to preventable financial crimes. Compliance models that unnecessarily block routes to instant payments or that lack proper controls for such payments will frustrate customers and undermine institutional credibility. Compliance professionals must think rationally about customers’ penchant for instant access today when developing controls, as unreasonable barriers may result in attrition.
Implementing technology changes and rethinking programs initially requires monetary resources and technical expertise. However, the benefits over time are manyfold and likely to result in higher customer retention, increased business opportunities, and improved risk management. Failure to adapt to customers’ penchant for instantaneous access and frictionless experiences is likely to result in poor customer experience and ineffective risk management.
