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AML - what does the future of fighting financial crime look like?

In this blog we will gain insights from the anti-money-laundering foot soldiers and introduce the blueprint for initiating leading AML practice.

Napier AI
May 27, 2021

Welcome to part two of our blog series on the future of fighting financial crime, which is a collaboration between Napier and our partner, RegTech Associates.

Last week, we examined the status of the fight against financial crime, the challenges faced by the sector and why a swift response is critical. This week, we will gain insights from the anti-money-laundering foot soldiers and introduce the blueprint for initiating leading AML practice.

The war on financial crime - interviewing the AML troops

As mentioned in our first blog in this series, RegTech Associates conducted research amongst AML practitioners within the financial sector to determine how they perceive their organizations as performing in the fight against financial crime. The results were revealing.

What does a leading AML approach mean to the troops?

A recent poll asked AML practitioners what they thought a leading approach to AML was.

11% felt it was combining fraud and AML, 28% thought it meant correlating transaction monitoring and KYC data, 6% perceived it as aligning transaction monitoring and trade surveillance, and 56% thought it combined all these facets.

While an encouraging 56% of respondents leaned towards holistic AML, a collective 44% did not. It is apparent that there is insufficient consensus for firms to be clear about their status, then accordingly create, and finally implement a successful framework to begin the journey towards leading AML.

What is an AML maturity Model?

Because the firms in the sector are so diverse in size, products, and services which they offer and where they are geographically, it is difficult to define exactly what a leading AML framework should look like. One approach is to apply an industry specific financial maturity model.

A 2009 analysis of IT sector maturity models in the Journal of Business Information Systems defines a maturity model as follows:

“A maturity model consists of a sequence of maturity levels for a class of objects. It represents an anticipated, desired, or typical evolution path of these objects shaped as discrete stages. Typically, these objects are organizations or processes.”

The definition further explains that the initial ‘stage’ is the least capable and the final ‘stage’ is the most.

However, this definition is itself fraught with potential pitfalls and differing interpretations. A 2019 report by McKinsey & Company on the use of maturity models to combat financial crime and money laundering explains:

“Most AML models are overly complex. The factors used to measure customer risk have evolved and multiplied in response to regulatory requirements and perceptions of customer risk but still are not comprehensive. Models often contain risk factors that fail to distinguish between high- and low-risk countries, for example. In addition, methodologies for assessing risk vary by line of business and model.”

Introducing the Napier AI AML maturity model

RegTech Associates’ research included studying several financial crime and AML-specific maturity models. As well as the differing definitions, they found many of the models wanting, whether they were too theoretical, lacked practical grounding, or were too tentative about how to utilise developing technologies.

To address this shortfall Napier developed the Napier AML Maturity Model (NAMM), which bases itself on the customer-centric approach discussed in a previous blog.

Briefly put, the NAMM framework is “designed to give regulated firms an understanding of the status of their AML and capabilities and the ability to continuously improve on the current state to achieve a more holistic and optimised state for combating financial crime.

The Napier AML maturity model (NAMM) - an overview

In summary, the NAMM breaks the journey from a siloed view to a customercentric view into five consecutive stages, namely:

  • Initial (which represents the siloed view)
  • Improving
  • Managed
  • Mature
  • Leading (which represents the final objective of the client centric view).

Each of the above steps is viewed through six organisational lenses:
Vision and Strategy, People & Culture, Process, Data, Analytics, and Infrastructure.

These lenses are then divided into five action areas, or dimensions, which are specific to each lens at each stage of the maturity model journey.

Performance in each dimension is then assessed through a series of carefully primed diagnostic questions. The answers to the questions are then used to assess performance in relation to each lens of each stage, which ultimately determines the stage of AML maturity a firm is at.

How to apply NAMM to your business

The Napier AML maturity model is applied to your business in three steps:
1.) Understand where you currently are by using the maturity model as a
diagnostic tool.

By asking diagnostic questions related to each dimension within each lens of the stages in the model, your business will be able to determine where in the overall model you are positioned.

2.) Define your future targets across the short, medium, and long term in line with your overall compliance and risk strategy.

This step allows your business to determine achievable and measurable objectives and time frames for progressing to the next stage of the model.

3.) Identify what actions you need to take to reach these targets.

This step lays out the action steps which must be taken to achieve the objectives described above, with an emphasis on pragmatic and incremental improvements

While the description of NAMM provided here is general, it lays out the road map to leading AML for your business, as well as the fuel and tools required for you to take the first steps.

You can see the NAMM infographic, watch, and listen to an overview of the model here.

The Napier AML maturity model and the future of fighting
financial crime

We have shown in today’s blog how AML practitioners perceive their organisations’ status in the fight against financial crime.  We explored what the challenges are when implementing a financial maturity model customised for the sector, and introduced the NAMM,as a way to assess AML maturity.

Over the next two weeks, we shall touch on the role of technology in NAMM, as well as introduce in detail the model’s stages, organisational lenses and dimensions, and demonstrate how these tie together when applied to your business.

This article is the second in a series of a larger paper authored by RegTech Associates in collaboration with Napier. If you would like to read the full paper, you can download it here.

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