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Why Anti-Money Laundering Should Be a Top Priority for Financial Institutions

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anti-money laundering
anti-money laundering

Why AML Should be a Top Priority for Financial Institutions

The to-do list for any financial executive is surely daunting. From navigating technology changes to managing talent effectively, there’s many initiatives competing for attention.

One issue that’s been in the headlines for many years is anti-money laundering (AML). When criminals are able to successfully hide the illicit origins of their cash, both the financial institution and society suffer. So, what makes AML more important now than it has been in the past?

Rising up the Priority Ladder

Today’s infographic from McKinsey & Company explains the factors which have brought anti-money laundering urgently to the forefront in recent years.

1. Regulatory Action

Enforcement actions related to AML have been on the rise. Since 2009, regulators have levied approximately $32 billion in AML-related fines globally.

2. Threat Evolution
Criminals are using more sophisticated means to remain undetected, including globally-coordinated technology, insider information, and e-commerce schemes.

3. Reputational Risk

AML incidents put a financial institution’s reputation on the line. There’s a lot at stake: today, the average value of each of the top 10 bank brands is $45B.

4. Rising Costs

Most AML activities require significant manual effort, making them inefficient and difficult to scale. In 2018, it cost U.S. financial services firms about $25.3B to manage money laundering risk.

5. Poor Customer Experience

Compliance staff must have multiple touch points with a customer to gather and verify information. Perhaps not surprisingly, one in three financial institutions have lost potential customers due to inefficient or slow onboarding processes.

It’s no wonder anti-money laundering has now become a top priority for many CEOs in the financial industry.

A Wave of Innovation

In the last five years, there has been an explosion of “RegTech” startups—companies that address regulatory requirements using technology.

Global RegTech Investments, 2014-2018

YearAmount Invested (USD)
2014$923M
2015$1,110M
2016$1,150M
2017$1,868M
2018$4,485M

Over 60% of these are focused on solving Know Your Customer (KYC) and AML issues. What does this technology look like in practice?

Customer onboarding

A hypothetical U.S. retail firm, ABC Electronics, applies online to open an account at AML Innovators Bank. Their information is verified and screened using a fully automated process.

If they are determined to be a lower-risk client, they will be fast-tracked through the approval process with decisioning in six hours or less. For high-risk clients, decisioning occurs within about 72 hours.

Transaction Monitoring

ABC Electronics requests to send multiple international wire payments to various beneficiaries. Each transaction is automatically screened based on various factors:

  • A same name or subsidiary transfer carries the lowest risk
  • Transfers to a known, similar industry in a high-risk jurisdiction carry medium risk
  • Transfers to an unknown industry in a high-risk jurisdiction carry high risk

These transaction scores, combined with algorithms that track a client’s expected vs. actual transaction behavior, will update ABC Electronics’ risk rating in real time.

Management oversight

As risk updates occur, ABC Electronics’ rating is integrated into AML Innovator Bank’s overall portfolio risk.

Senior risk management teams will be able to view a heat map that highlights the highest risk areas of the business.

Structural Change, Big Gains

Just as financial crimes continue to evolve, so do AML schemes.

How can organizations stay ahead of the game? They can focus on actively managing risk, deliberately investing in technology and analytics, and prioritizing areas where RegTechs will have the highest near-term impact.

By investing in AML, financial institutions create competitive advantages:

  • Improved efficiency
  • Superior customer experience
  • Scalability
  • Readiness to adapt to new regulations
  • Reduced reputational risk
  • Ability to attract top talent

With such benefits on the table, one thing is clear: Anti-money laundering efforts are more important now than they have ever been.

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Banks

Visualizing the Importance of Trust to the Banking Industry

In the digital age, the issue of trust is emerging as the game-changing factor in how consumers choose financial services brands.

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Visualizing the Importance of Trust to the Banking Industry

In the digital age, money is becoming less tangible.

Not only is carrying physical cash more of a rarity, but we are now able to even make contactless payments for many of the products and services we use on the fly.

Our financial transactions are starting to be analyzed and optimized by artificial intelligence. Meanwhile, investments and bills are paid online, and even checks can now be deposited through our phones. Who has the time to visit a physical bank these days, anyways?

Trust in the Digital Age

The migration of financial services to the cloud is increasing access to banking solutions, while breaking down barriers of entry to the industry. It’s also creating opportunities for new service offerings that can leverage technology, data, and scale.

However, as today’s infographic from Raconteur shows, this digital migration has a crucial side effect: trust in financial services has emerged as a dominant driver of consumer activity.

This likely boils down to a couple major factors:

  • Tangibility
    Financial services are becoming less grounded in physical experiences (using cash, visiting a branch, personal relationships, etc.)
  • Personal Data
    Consumers are rightfully concerned about how personal data gets treated in the digital age

Further, the above factors are compounded by memories of the 2008 Financial Crisis. These events not only damaged institutional reputations, but they elevated trust to become a key concern and selling point for consumers.

Trust, by the Numbers

In general, trust in banks has been slowly on the rise since hitting a low point in 2011 and 2012.

At the same time, consumers are consistently ranking trust as a more important factor in their decision of where to bank. To the modern consumer, trust even outweighs price.

Top Five Factors for Choosing a Bank:

  1. Ease and convenience of service (47%)
  2. Trust with the brand (45%)
  3. Price/rate (43%)
  4. Service resolution quality and timeliness (43%)
  5. Wide network coverage of ATMs (40%)

It’s important to recognize here that all five of the above factors rank quite closely in percentage terms. That said, while they are all crucial elements to a service offering, trust may be the most abstract one to try and tackle for companies in the space.

With this in mind, how can financial services leverage tech to increase the amount of trust that consumers have in them?

Tech Factors That Would Increase Consumer Trust:

  1. Reliable fraud protection (36%)
  2. Technology solves my problems (13%)
  3. Useful mobile application (9%)

Better fraud protection capability stands out as one major trust-builder, while designing technology that is useful and effective is another key area to consider.

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Banks

Visualizing the Future of Banking Talent

Banking talent is undergoing a fundamental shift. This infographic explores how banks are adapting to rapid automation and digitization in the industry.

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Visualizing the Future of Banking Talent

View the full-size version of the infographic by clicking here

Many organizations say that their greatest asset is their people. In fact, Richard Branson has famously stated that employees come first at Virgin, ranking ahead of customers and shareholders. So, how do businesses effectively manage this talent to drive success?

This question is top of mind for many bank CEOs. As processes become increasingly automated and digitized, the composition of banking talent is changing – and banks will need to become adept at hitting a moving target.

Six Ways Banks are Becoming Talent-First

Today’s infographic comes from McKinsey & Company, and it explores six ways banks are becoming talent-first organizations:

1. They understand future talent requirements.

43% of all bank working hours can be automated with current technologies.

Consequently, talent requirements are shifting from basic cognitive skills to socio-emotional and technological skills. Banks will need to analyze where they have long-term gaps and develop a plan to close them.

2. They identify critical roles and manage talent accordingly.

It is estimated that just 50 key roles drive 80% of bank business value. Banks will need to identify these roles based on data rather than traditional hierarchy. In fact, 90% of critical talent is missed when organizations only focus at the top.

Then, banks must match the best performers to these roles and actively manage their development.

3. They adopt an agile business model.

Banks will need to shift from a hierarchical structure to an agile one, where leadership enables networks of teams to achieve their missions. As opportunities come and go, teams are reallocated accordingly.

This flexible structure has many potential benefits, including fewer product defects, lower costs, shorter time-to-market, increases in customer satisfaction, and a bump in employee engagement.

4. They use data to make people decisions.

Instead of making decisions based on subjective biases or customary practices, banks will need to rely on the power of data to:

  • Recruit
  • Retain
  • Motivate
  • Promote

For example, company data can be used to develop a heatmap of the roles with the highest attrition rates. Leaders can then focus their retention efforts accordingly.

5. They focus on inclusion and diversity.

Gender and ethnicity diversification leads to higher financial performance, better decision making, higher employee satisfaction, and an enhanced company image.

Industry-leading banks will set measurable diversity goals, and re-evaluate all processes to expose unconscious biases. For example, one organization saw 15% more women pass resume screening when they automated the process.

6. They ensure the board is focused on talent.

Only 5% of corporate directors believe they are effective at developing talent.

To be successful, boards will need to recognize Human Resources (HR) as a strategic partner rather than as a primarily transactional function. The CEO, CFO, and CHRO (Chief Human Resources Officer) form a group of three that makes major decisions on human and financial capital allocation.

CEOs worldwide see human capital as a top challenge, and yet they rank HR as only the eighth or ninth most important function in a business. Clearly, this is a disconnect that needs to be addressed. To keep up with rapid change, banks will need to bring HR to the forefront – or risk being left behind.

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