On May 4th 2023, Napier conducted our inaugural Disrupt Fincrime conference at PwC's South East Asia Consulting Experience Centre, Singapore – the first of a global tour, with virtual attendees dialling in from all over Asia Pacific. Senior business and technology decision makers from large financial institutions, fintechs, payments and gaming organisations throughout the region gathered to attend the conference.
The theme was Balancing Innovation and Regulation, with an aim to explore how best to modernise AML systems in order to keep pace with the exponential growth in volume, velocity, and variety of global financial crime. While it has become increasingly clear that legacy processes and technologies are not up to the job, financial institutions are struggling to overcome the issues of technical debt and a lack of institutional knowledge and resource. Quite rightly, they are turning to next generation solutions leveraging artificial intelligence, automation, and low code/no code approaches.
In the panel discussion moderated by Napier’s chief product officer William Monk, it became clear that not all solutions are created equal, and not all innovation equals compliance.
Our panellists, Aspire’s head of compliance Tarini Ponniah, Maybank Singapore’s head of financial crime compliance Jee Meng Chen, PwC’s managing director and head of financial crime compliance managed services Joshua Heiliczer, and Refinitiv's director of customer and third party risk solutions Michael Meadon came together to discuss how to improve the way our industry combats financial crime.
Introducing the session, Napier’s William Monk commented, “Global scrutiny has never been more intense as demand builds for more oversight of banks and newly regulated entities, from the likes of the Department of Justice, Monetary Authority of Singapore, The Financial Action Task Force (FATF), and Interpol. Everyone in the room is a financial crime fighter, but right now many are hindered by legacy technology, manual processes, or regulatory ambiguity in our markets.”
Opening the discussion, the panel described how the desire to drive more tangible financial crime prevention strategies impacts the technology, process, and resource needs of their organisations. The opportunity and the challenge lie in merging compliance requirements with the customer journey and in searching out benefits to both the financial institution and the customer.
What are the biggest challenges you are seeing right now in AML across the ecosystem?
“The first and foremost challenge right now is the number of false positives owing to the fatiguing volume of alerts” said Joshua Heiliczer. Getting through haystacks to find the needle in an abbreviated review to find significant risks that actually matter is why we need disruption in this space. Adding to this, Michael Meadon mentioned the concern of US Sanction hyperinflation on China, and the problem of name screening with common names in particular populations. The chasm between policy and fincrime operations, sometimes lead to non-integration of KPIs and efficiency. Larger institutions with legacy systems need to catch up to reduce their tech debt.
What are the potential pitfalls of modernisation? Where do you see organisations losing their way?
The panels' view was that the use of information technology is inevitable. There’s no one-size-fits-all solution. Whatever system a firm chooses must complement your overall architecture, including go-forward strategy. Once you’ve deployed a system; there is no guarantee that the calibration remains relevant months down the line. Drifts in data sets and evolving customer behaviour should be taken into account, along with making sure that your model takes all relevant data points from the regulator into consideration.
It was also mentioned that typologies differ from bank to bank. Despite the exchange of data and information, it's possible for criminals to outsmart the system. Financial institutions should analyse how scalable their solution is, recognise that current performance is no indication of the future and always employ ongoing monitoring of systems. Criminals are continually adapting; hence there’s a need to always look out for new anomalies by taking a macro approach to risk assessment.
How can next-generation solutions make a positive impact on financial crime prevention?
“Analysing data quickly using new generation systems definitely helps get a more auditable, holistic view of risk and policies as opposed to working with legacy systems and spreadsheets” - Tarini Ponniah, head of compliance - Aspire.
Automation is amazing when directed in the right way, like conducting searches and bringing in data. It can gather large amounts of data and present it in a way that helps the user to review the analysis quickly. However, human rationality cannot be automated, and since the financial crime prevention regulations are descriptive and not prescriptive in nature, we can’t remove the human element completely.
The industry is evolving, and the table stake for vendors now is highly accurate data. Along with this, the diffusion of responsibility between different levels of management about various granular compliance issues should also be addressed. It is the role of technology to address complacency and inertia in risk management to enhance supervision and regulation. The ability to change things fast, and the overall flexibility of the system is crucial to maintain relevance. Building a culture of responsibility and accountability in compliance teams can help in converging risk events into a single point.
Compliance is not a checkbox anymore; financial institutions are now shifting to finding the sweet spot to grow a business sustainably while building a culture adhering to regulations. Technology has also driven changes in processes and human resourcing needs. The consequences are far-reaching, especially in the use of human capital. The creation of a cross functional team encompassing knowledge of the compliance landscape, the nuances of IT in a bank, and the diverse typologies a bank covers, is essential. Financial institutions should hire multidisciplinary teams; a blend of generalists and specialists that have broader skill sets to understand the working of various departments working towards compliance goals.
There is clearly a desire and collective action from stakeholders across the world to be more effective in our fight against financial crime. With the right approach to modernisation and the right next gen solutions, we can drive a real change in our organisations and positive change in the world.
Register for Disrupt Fincrime London
If you’re interested in these insights, sign up for our next Disrupt Fincrime summit at PwC's More London HQ on the 24th May,2023. Join Graham Barrow, host of the popular podcast 'Dark Money Files' and many other financial crime fighters across the world. Register here.
Photo by Eugene Lim on Unsplash
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