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Holistic AML – why is it so important?

Napier head of APAC Robin Lee spoke about the need for a holistic approach to AML compliance, what the future of AML looks like, and what effective use of technology looks like.

Napier AI
August 3, 2021

Napier’s head of APAC, Robin Lee, gave a virtual talk at the 3rd annual Fintelekt Academy summit, discussing why a holistic approach to AML is important.

You can access a recording of the talk here.  

The challenges in current KYC and AML approaches

Periodic reviews

Robin introduces the fictional character of ‘Charlie,’ the head of compliance for a large bank who’s faced with the daunting challenge of conducting periodic reviews every one to five years. While Charlie may be fictional, the challenge he faces is all too familiar to compliance officers tasked with conducting ongoing KYC.

Siloed systems and data

It’s daunting because Charlie has five systems to maintain and to draw from every time he needs to put a report together for a customer. Those systems are:

aml, kyc, client screening, risk screening, transaction screening, transaction monitoring, sanctions screening, compliance
The 5 main AML compliance systems

The information from these disparate systems must be manually collected by Charlie every time he conducts his periodic reviews. But these five systems are just the AML suite; sometimes additional systems are needed to create a report depending on the types of services his bank offers, such as:

  • Core Banking
  • Blockchain Monitoring
  • CRM (Customer Relationship Management)
  • KYB (Know Your Business)
core banking, blockchain monitoring, crm, kyb, kyc, aml, monitoring
Additional AML systems that a financial organisation may utilise

If Charlie has around 150,000 customers to repeat this process for, it becomes clear that conducting period KYC reviews is not efficient and is in fact an incredibly stressful undertaking on such a scale.

At Charlie’s bank, client risk is currently assessed at onboarding as high, medium, or low risk, and this risk assessment determines the period between periodic KYC refreshes for a client. Higher risk clients could expect a review once a year, whereas low risk clients could expect to be reviewed only once every five years in line with this periodic KYC approach.

On top of this, a business of this size might expect to acquire 7,500 new customers a year who need to be incorporated into the bank’s AML processes.  

Given those numbers, Charlie’s bank would have to conduct 25,000 KYC reviews in year one of this cycle, 64,500 in year three, and a staggering 118,500 in the fifth year (assuming new business volumes remain flat).

risk assessment, kyc, periodic kyc, perpetual kyc, client risk

By year five, Charlie and his team would have spent around 1.3 million hours conducting KYC file reviews from clunky, fragmented data sets (based on an average touch-time of 12 hours per file and excluding the new business KYC processing).

The challenges of periodic KYC, in a nutshell:

Poor client experience

  • Clients are contacted multiple times for data they have previously provided
  • Data is not easily accessible despite being retained by the bank

Operational impact

  • Significant effort is involved in the process  
  • Huge cost implications for financial organisations
  • Ongoing challenge to recruit and retain quality compliance officers 
  • Low levels of automation mean everything must be done manually

New business impact

  • KYC refreshes often take priority over new business processing  
  • Ability to respond to urgent new business and drive improvements is often compromised
  • Resource and time strains are further amplified by one-off remediation exercises

Regulatory compliance and approval

  • Challenges in driving consistent quality of regulatory compliance when reviews are only periodic
  • Analysts risk not ‘seeing wood for the trees’ and missing true risks due to high volumes of information to process
  • Regulators' views of risk mitigation are often unfavourable as periodic KYC allow risks to go undetected between reviews

With challenges like these it is no wonder that Charlie, and the very real compliance officers he represents, struggles to operate effectively and efficiently to comply with AML regulations and catch risky financial behaviour at his bank.

Introducing the holistic approach to KYC and AML

Robin then introduces ‘Nat.’ Nat is also the head of compliance at a big bank, but unlike Charlie Nat has approached her KYC processes armed with the best AML solutions modern technology has to offer. Instead of siloed, standalone systems, Nat has employed the Napier platform where all the information she could need to conduct a KYC review is housed in a single view.

Nat doesn’t just have a software platform; she has a data platform where for the first time the AML team has their own data set to play with, comprising the data set made up of data from each system and teams. The Napier platform is so flexible that it can integrate using virtually any known connection methodology today, whether that’s APIs, flat files, or FTP/FSTP.

All the relevant data from external apps is made available to the AML team for client activity review, and provides Nat and her team with the following benefits:

  1. Client insights: Collating large amounts of data in Napier’s AI-enhanced platform provides analysts with intelligent, transparent insights into client risk and behaviour.  
  2. Perpetual KYC: Perpetual KYC is risk-triggered and works to automatically alert the AML team to any new risks a client is presenting, allowing for an investigation to occur as and when a significant risk presents – as opposed to at the next periodic KYC review which could be years away.
  3. Client 360 reviews: This automates the process of collating reports and large amounts of data from various case management systems. This means Nat and her team don’t spend hours manually gathering this information for a review, as this process can easily be automated on Napier’s platform.

The benefits of holistic AML

Improved client experience. Client data is only requested when circumstances change, reducing the volume of outreach and data requests put on clients.

Significant operational benefits. Only changes to transactional activity or customer behaviour drive customer refreshes, significantly reducing analyst workload and operational costs.  

New/expanded revenues. Compliance can be a revenue generator as changing client circumstances may indicate a material change of business and present a cross-sell opportunity. Greater focus of the AML team’s efforts due to the reduction of reviews should prove to be revenue enhancing.

Improved regulatory compliance. Identifying changes in client circumstances using transactional behaviour may indicate a changing risk profile. A reduction of ‘noise’ allows compliance officers to rapidly identify the material risk and react accordingly.

Maximise existing investments and deliver time to value. Improved ROI for the company.

What does the future look like when powered by holistic AML?

When leveraging an intelligent data platform like Napier’s, the wider impact will be felt across an organisation.

Not only would the core banking and CRM systems be integrated on future versions of the platform, but the procurement side of the business would also benefit from the integration of third-party risk management. Where a business has a cryptocurrency side to it, they could benefit from the integration of data from block chain transaction monitoring, crypto screening, and crypto EDD reports, all onto this single view platform.

The opportunities for integration are endless but the combination of Client Activity Review, enhanced by AI and additional data from various sources, gives Nat and the compliance team further insights into client behaviour. Perpetual KYC, triggered by alerts from additional integrated apps, should replace the outdated practice of periodic reviews as it not only saves valuable time and resources, but provides even richer client 360 views.

And as for Nat, in the future she would be bringing immense value to the company by transforming their AML process and earn commendation from her colleagues.

Who would you rather be: a Nat or a Charlie?


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