3 keys to a stronger AML compliance program

Ralph D. Wright, Sarah Harmon
Financial services companies can reduce expenses and improve efficiency in their AML compliance programs by focusing on three critical areas.

Continual risk assessments, model tuning, and investment in technology can transform an AML compliance program.

At many financial services companies, anti-money laundering (AML) compliance can appear to the business line as an area of high cost and low return. But the truth is that only an inefficient, underinvested AML compliance program is a cost center – and one that forward-thinking companies need to prioritize for investment and reinvention.

By focusing on three key areas of opportunity, financial services companies can improve efficiency, reduce expenses, and build stronger, more valuable AML programs.

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1. Continual risk assessments

Continual risk assessments - Enable faster, more accurate reporting.

Many AML compliance programs only perform an AML and sanctions risk assessment on an annual basis. But by integrating a more continual approach to risk assessments, organizations can better identify emerging or evolving AML risks earlier and more often.

A shift toward continual risk assessments often begins with an increased cadence – maybe semiannual or quarterly instead of once per year. And along with a faster cadence of risk assessments, organizations should identify triggering events that require an AML risk assessment in response, such as:

  • A new business model or strategic partnership
  • A new product offering
  • Expansion into a new geographic area
  • A change in relevant regulations
Continual risk assessments

As an example, consider a scenario in which your organization wants to launch a new product. But what if its existing AML compliance technology doesn’t have the right capabilities to manage the increased AML risks that arise from that product? Not having the right technology in place might lead to delaying a new product launch to avoid unacceptable AML risk or regulatory fines.

In this situation, a nimble enterprise risk assessment process could help:

  • Identify weaknesses in the control environment and the resulting increase in residual risk, which could exceed the organization’s risk tolerance
  • Enable faster, real-time reporting to determine if the additional risk is reasonable
  • Shape interim or secondary transaction monitoring controls that can manage residual risk while the organization works to identify a longer-term solution

2. Model tuning and optimization

2. Model tuning and optimization - Reveal underlying data quality issues.

With the additional information and AML awareness that comes from a more continual approach to risk assessments, organizations might identify opportunities to improve the quality of their AML models and financial crime system outputs.

For example, if a risk assessment identifies that wire transfers to a country identified as high-risk are on the rise and generating more alerts, AML teams need to respond. Their first step is to examine the alert quality coming from transaction monitoring systems and determine whether the system needs tuning or optimization.

If alert reviewers find that most of these additional alerts are false positives or nonproductive, then analysts can adjust alert thresholds in a model environment. If a threshold for an alert for a wire transfer rises from $10,000 to $20,000, will this let potentially suspicious activity slip through the system, or will it simply reduce false positives and improve alert quality?

Model tuning and optimization

When every alert requires manual review, optimizing and tuning financial systems and models to reduce false positives yields plenty of practical business value. A well-tuned system can:

  • Lower costs from reviewing nonproductive AML alerts
  • Improve coverage and response times for genuinely suspicious alerts
  • Give second-line professionals and organization stakeholders extra confidence
  • Reveal underlying data quality issues and other root causes of nonproductive alerts

3. Investment in technology

Investment in technology - Reduce the cost of outsourced review services.

Most organizations outgrow the capabilities of their AML technology at some point, whether through a merger, acquisition, or steady growth. Some signs that it might be time for new technology include:

  • A high percentage of alerts closed with no follow-up actions and no suspicious activity detected
  • A lack of success in reducing false positives through tuning and optimization
  • A new product, partnership, or strategic initiative that current AML technology doesn’t accommodate

Purchasing new AML technology represents a major investment that could reduce expenses in many ways. The right tool could improve the efficiency of the AML program, reduce the cost of outsourced review services, and deliver powerful new capabilities, such as the ability to automatically hibernate alerts that are unlikely to represent suspicious activity.

To settle on a right-sized tool with appropriate capabilities, compliance teams need to understand the organization’s growth strategy and long-term priorities. For example, if part of the bank’s strategy involves building more relationships with fintechs, then the organization needs AML technology capabilities, such as strong customer risk ratings, to manage the differences between their own AML approach and that of a fintech partner.

With a technology-supported AML compliance program that efficiently uses resources, organizations can increase stakeholder confidence in the program, streamline compliance, and devote more resources to strategic initiatives that support the bottom line.

Learn how our experienced team of financial crime specialists can help.

Let’s talk

Crowe financial crime prevention specialists can provide services that strengthen your organization’s AML program and help your people focus on the most important risks and activities.

Whether you need help with alert reviews, tuning and model optimization, or AML testing and risk assessment, we can tailor a strategy and put together the right team.

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Ralph D. Wright
Principal, Financial Services Consulting