An End-to-End AML Cloud Service Benefits Midsized Banks

The state of AML at midsized banks today

Midsized financial institutions are the lifeblood of the global financial system. In the U.S. alone, they represent 97% of the total number of banks. Compliance costs disproportionately burden (PDF) smaller and midsized financial institutions, which must meet the same regulatory and performance standards as larger institutions, while protecting against the same complex criminal behaviors. These institutions simply have far fewer resources, especially when it comes to budget, technology, and headcount. Many also have a fragmented maze of AML systems.

In short, they must do more with less—and this handbook explains how they can do that with an end-to-end suite of cloud-based, anti-money laundering applications.

Why do so many midsized banks have fragmented AML systems?

• Mergers and acquisitions: After a merger or acquisition, a bank may decide it's easier to keep the AML systems from the merged companies instead of shifting everything to one system.
• Disconnected business processes: Fragmented AML systems can arise if the bank requires different AML systems to talk to different parts of its core system.
• Point-solution strategy: Many banks rely on a point-solution approach—adding one-off solutions over time to handle new regulations, products, or high-risk businesses.

The problems with fragmented AML systems

Fragmented AML systems create complex problems such as:

• Fragmented data: It’s difficult or impossible to achieve a 360-degree customer view when data resides in different systems.
• Lack of centralized case management: Investigations are less efficient, and investigators may not see key insights when there’s no centralized case management.
• Higher costs: Banks must invest significant resources, including model validation and infrastructure upkeep, to meet compliance requirements for multiple systems.
• IT issues: Implementation cycles for changes and updates take longer when fragmented systems don’t talk to each other.
• Innovation roadblocks: Banks may fall behind in innovation as it becomes more challenging to adopt new tools and technologies when so many resources are dedicated to supporting multiple systems.

Why change now?

Switching to an AML system is a big decision for any chief compliance officer—as they must weigh potential increases in effectiveness and efficiency against time, cost, and risk factors. But, given that 63% of community bankers recently cited regulatory burden as their biggest BSA/AML concern (far outpacing concerns about costs and risky customers), a new system that significantly improves overall AML effectiveness and efficiency may be well worth it.

A series of current trends illustrates the significant challenges facing midsized banks, as well as opportunities for transformation.

Trend 1: Large banks are changing their AML programs

Opportunity for better AML: Capture new customers by separating the good from the bad

Large banks have reacted to intense regulatory scrutiny and improved their defenses—spurring criminals to move on to smaller institutions that may be easier targets. And, while many large institutions have increased their controls, some have prematurely severed certain business relationships to decrease risk. This opens a door for midsized banks to onboard good customers that large institutions mistakenly perceived as too risky. Midsized banks can more accurately assess customers’ risk by employing a data model that can process and analyze large amounts of structured and unstructured data from both external and internal sources.

Trend 2: The banking industry is consolidating

Opportunity for better AML: Consolidate systems for better insights

Over the last two decades, the average number of announced bank merger and acquisition deals has hovered around 250 to 280 deals per year, and banks with less than $10 billion in assets make up the vast majority. After a merger or acquisition, a bank will have two or more compliance systems. If it consolidates them—rather than allowing multiple systems to remain—it can aggregate data for better, more comprehensive customer risk scoring and insights. This consolidation also encourages efficiency, as employees and IT teams only need to stay proficient in one system and can avoid the gaps that come with patchwork systems and siloed work.

Trend 3: Customer experience is becoming even more important

Opportunity for better AML: Use AML to enhance customer experience

As the number of local bank branches continues to decline, midsized banks should seek to gain customer mindshare through digital maturity, share of voice, and customer experience. Many midsized banks are prioritizing just that—77% of bank respondents in the What’s Going On In Banking 2020 report said that improving customer experience was a top priority.

While compliance hasn’t typically interfaced with customers, that is changing. It can support a great customer experience with seamless onboarding and minimal disruptions due to verifications and holds related to suspected fraud or money laundering. But, midsized banks need the right controls in place to mitigate low detection and high false positives. A comprehensive technology suite should offer out-of-the-box tools to address these issues.

The solution: End-to-end AML as a service

Why switch to a single, complete AML system?

Chief compliance officers at midsized financial institutions who risk score accuracy look to streamline their AML systems might wonder where to start. SaaS offers a cost-effective, comprehensive, and accelerated path forward. Specifically, banks should look for a single, end-to-end, cloud-based SaaS solution that spans all AML compliance functions—Know Your Customer, customer screening, transaction monitoring, and regulatory reporting.

Banks shouldn’t move to a single system just for the sake of having one system. It needs to provide better results and do everything you need it to do. The right AML as a service can help chief compliance officers to:

• Centralize data to improve risk score accuracy
• Centralize scenario management for better design, tuning, and back testing
• Centralize case management for a single customer view and more efficient investigations
• Centralize process management for faster setup, more automation, and deeper insights
• Reduce IT vendor management burden

Why switch to SaaS for AML?

Some AML solution providers offer cloud-based “hosted” applications (where a customer purchases software which is installed at a hosting center and then implemented like an on-premises solution in the office). A true SaaS solution is much simpler. It is accessible over the web and requires no installation, providing some important benefits to the compliance department:

• Deployment ease
• Faster time to benefit
• Frictionless scalability
• Frequent updates that provide access to the latest, most advanced features (some of which may otherwise be unaffordable)
• Predictable, subscription-based pricing that includes upgrades and maintenance

What to look for in end-to-end AML as a service

Midsized banks need systems that can support their ambitious plans to grow through innovation and acquisition, and solutions that will protect them as the risk of money laundering increases. They need the same world-class technology that big banks use, but tailored for them in an easy-to-manage, cost-effective package.

Things to look out for include:

1. A single, easy-to-use browser user interface with features such as:

• Ability to quickly set up the data pipeline
• A centralized view of integration points into different data sources
• IT operational insights for system administrators and the ability to manage upgrades with ease
• Flexibility to easily configure user roles and workflows, automate processes, design custom scenarios, access a catalog of pre-built scenarios, and perform threshold simulation, tuning, and back testing
• A highly configurable solution that allows users to make changes quickly―without recoding―as policies, best practices, and regulations evolve

2. Centralized case management and a common data model:

An AML cloud service with these capabilities can provide a holistic view of each customer or counterparty and a 360-degree view of their risk. The benefits of centralized case management extend beyond risk assessment and include extended collaboration for faster investigations and decision-making and greater overall efficiency.

3. Extensive use case coverage:

AML-as-a-service will allow fewer customizations than an on-premises solution. Therefore, a SaaS-based AML system must be feature-complete and frequently updated to minimize customization constraints.