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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.
A handbook for chief compliance officers to understand how a complete AML cloud service can help navigate the challenges of more technologically savvy money launderers, growing regulatory requirements, industry consolidation, and demanding customers.
Fragmented AML systems create complex problems such as:
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 (PDF) 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.
Opportunity: Separate 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.
Opportunity: 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.
Opportunity: 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.
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:
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:
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:
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.
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.
How midsized banks can benefit from a complete AML cloud service