The future of financial crime compliance

The global financial services industry including Asia is being plagued with the pervasive nature of financial crime and the ever-changing typology of threats. These threats include money laundering, tax evasion, bribery and corruption, and fraud – and financial institutions are grappling to find the right balance to ensure that their compliance programmes are able to adapt and respond.

The unintended consequences of regulatory expectations on financial crime compliance and low tolerance for failure by regulators have resulted in, inter alia, voluminous and manual processes prone to human error. Many financial institutions typically have large compliance and operations teams to monitor and identify regulatory risks, and track regulatory changes in order to stay compliant.

Dealing with the ever-changing typology of threats and the increasing regulatory expectations has resulted in growing frustrations over legacy and lengthy compliance processes leading to the use of narrow point technology solutions.

Even so, the battle for compliance is waning. Despite cumulative billion dollar expenditures across the industry to improve the state of compliance – either by having more human resources or through the utilisation of new technologies and systems – these actions may not adequately meet future demands to keep a financial institution’s compliance programme defensible and a step ahead of sophisticated criminals. In other words, having a larger team is not a silver bullet for effective compliance.

Achieving seamless compliance
What then is the way forward? There must be a conscious shift in the compliance operating model to move from checkbox compliance to “seamless compliance”.

Across the financial crime risk management framework, there are many areas in the value-chain where technological innovations such as Robotic Process Automation (“RPA”), data analytics and cognitive intelligence can be applied. Equally important, financial institutions also require a seamless innovation strategy across the compliance framework, the control environment, and the customer life cycle.

With digital disruption, technological revolution, open APIs, and emerging typologies, there is arguably a widening gap between where a financial institution’s financial crime compliance programme is, versus where it needs to be. Not surprisingly, it is about reducing the chasm and leveraging these new technologies to build a compliance programme to safeguard systems and ensure no bad actors or criminals can exploit the system.

For instance, there is great value in automation. Rarely is this about the trending debate of robots or machines taking over, but rather, it is about applying automation where fitting to reduce the mundane and repetitive tasks. Many financial institutions have large customer databases that have to be checked under stringent “Know Your Customer” and “ongoing monitoring” rules, and these checks are mostly done by large teams through manual processes.

With RPA, financial institutions can design rules-based systems that mimic human behaviour to automate repeatable processes and achieve greater consistency in outcomes, accelerate the time taken to onboard customers, and potentially reduce operating costs. In the case of risk management, enhancing RPA with artificial intelligence and machine learning has immense potential to make compliance a more meaningful exercise.

Ultimately, compliance teams and employees ought to perform higher value work, such as analysing the outcomes and quality to ensure policies and procedures are substantial, and even perform issues resolution. This way, compliance professionals can focus on the risks that matter to attain greater risk management maturity. A cogent strategy around innovation in financial crime compliance is the key to building an effective compliance operating model to remain relevant to ever emerging threats, an evolving landscape and changing typologies. 

Further steps
The burden to tackle financial crime and forge ahead of money launderers and terrorist financiers cannot be placed on financial institutions alone. Cooperation is vital between and among regulators, enforcement agencies and financial institutions. Regulators and enforcement agencies have greater and far-reaching capabilities whereas financial institutions only have a limited view of their clients and transactions. In that regard, more momentum in terms of international cooperation to better manage financial crime needs to happen.

This cooperation can come in the form of an enhanced technology infrastructure for monitoring, information sharing and reporting between regulators, enforcement agencies and financial institutions.

The financial services industry needs to start thinking now what the future of financial crime compliance will be, to ensure that it keeps up with the changes and effectively combat financial crime.

More importantly, seamless compliance will also move the industry toward value creation. Using tools, technology and a reimagined financial crime compliance framework, industry players can leapfrog in delivery and accelerate the insights for financial institutions to become more competitive.