Recently, Napier partnered with RegTech Associates for a webinar exploring the importance of customer behaviour in fighting financial crime.
Expertly moderated by Dr Sian Lewin, Co-Founder and Head of Client Delivery at RegTech Associates, the panel explored the importance of understanding customer behaviour to add context to and understand the difference between legitimate and suspicious activities.
Why does understanding customer behaviour make a difference in KYC and AML?
Customer behaviour expert, Alan Morley, provided his insights as to why customer behaviour is pivotal to the identification of suspicious criminal activity.
The key point is that, as Alan says, ‘people do things’ and without a lot of context around that behaviour, it is impossible to tell whether those things warrant further investigation.
Without the additional richness of the contextual data from KYC checks, transaction monitoring alone cannot pick up whether customers are deviating from approved or expected behaviour or indeed that of their peers.
Take, for example, a company which is paying its bills perfectly and its money flow is perfect in terms of a regular clock cycle, month after month.
It is likely that this is an anomaly because most legitimate enterprises experience delays and cyclical changes. Only a deeper understanding of your customer and their behaviour allows you to identify this as being suspicious.
“You show me the company that manages its finances like a Swiss watch and I'll show you a professional money laundering organisation.”
Data is key to understanding your customer
For firms who are beginning the journey to look at customer behaviour, Alan’s advice is to start with understanding the data that you have. How can you combine that with other data sets to get more intelligence about your customers?
The next step is to integrate those data sets and this can be quite a daunting task, sometimes requiring multi-year data remediation projects to achieve the level of data quality required. Solutions like Napier can help with this process, bringing data from onboarding and transaction monitoring systems together in a way that layers over existing technology.
Financial institutions are already monitoring customer behaviour
An audience poll taken during the webinar showed that 83% of respondents said their firms were already monitoring customer behaviour for AML purposes which was great to hear. Reflecting on this, panellist Nitzan Solomon (Head of Surveillance and Financial Crime EMEA, Nomura) described the move towards monitoring customer behaviour as the natural progression in the AML universe and that it’s not a question of if but of when, and to what extent.
Bringing KYC and AML closer together doesn’t necessarily mean full integration
Panellists discussed what we really mean by breaking down the silos between KYC and AML. Good reasons exist for the separation of these functions between the first and second lines of defence - keeping the responsibilities for data entry into the organisation separate to that data being used by the financial intelligence group prevents data from disappearing into the black hole of investigations and ultimately, SARS.
Whilst merging KYC and AML operations into one business unit isn’t necessarily the ideal either, everyone on the panel agreed that greater collaboration and sharing of data is beneficial, especially to create a virtuous feedback loop between intelligence gained through transaction monitoring and KYC.
Our poll results show that nearly 80% of those that answered said their firms are bringing AML and KYC closer together.
Benefits of a customer-centric view of data for AML and beyond
We asked our audience what they thought the key benefits of the customer centric approach are and they were unanimous in saying there were multiple benefits.
High on the list is being better able to manage financial crime risk - both in terms of accuracy but also in terms of cost and efficiency. Having a better handle on customer risk allows resources to be allocated to the higher risk activities and technology is key to enabling this.
Moving towards perpetual KYC and away from periodic client refreshes is clearly a win - reducing both cost and effort. Having a more digital approach to customers and data, firms have the ability to get deeper insights into their customers which is desirable in a world of personalisation and high customer expectations.
And customer relationships will also benefit - relationship managers will no longer need to continually ask their clients for updated information and will be able to focus on more positive conversations about revenue.
Several challenges still need to be overcome to enable a focus on customer behaviour
Using customer behaviour to link KYC and AML together is not without its challenges. Whilst legacy technology and infrastructure may seem to be the biggest impediments, the panel agreed that actually, its not just technology that gets in the way.
“Data is a hurdle. Organisational silos are hurdles. Politics often is a bit of a hurdle”
Wendy Murray suggested that there is a balance to strike between the typical conservatism of the second line of defence and putting too many controls on the business that it leads to paralysis. Efficient and effective procedures are critical, and understanding that technology solutions can add to this is really important for firms to consider.
Crystal ball gazing
Looking to the future, the panel offered their predictions for the future of fighting financial crime ranging from an increased focus on Digital ID, through to bringing surveillance and financial crime closer together and greater collaboration through the sharing of data through KYC utility models. What was most apparent though is that we already have the technology and tools to adopt a smarter approach to KYC and AML and the immediate focus should be on making that happen.
The expert panel comprised:
- Wendy Murray, Associate Director and Head of Lysis Academy, Lysis Financial
- Alan Morley, Financial Crime Behaviourist
- Greg Watson, COO at Napier
- Nitzan Solomon, (VP) Head of Surveillance and Financial Crime, EMA at Nomura
If you weren’t able to watch the webinar live, you can still watch the entire webinar on demand. Or the expert interview with Alan Morley