Anti-money Laundering: What’s in Store for 2012?

As financial institutions prepare for the demands of the new year, industry analysts are predicting that Bank Secrecy Act (BSA) and anti-money laundering (AML) compliance management software will be a key focus for them in 2012. After much criticism from federal examiners in 2010/11, the anticipated trend for financial institutions will be in addressing compliance using IT, eliminating silos of automated systems and creating more effective BSA and AML compliance programmes.

Analyst firm Gartner agrees that this as an upcoming trend mostly due to the increased regulatory pressures, and the rising cost of high volume transaction scanning is the driving factor for financial services firms to invest in AML systems.

While many institutions may find it difficult to build a business case for integrating AML with anti-fraud, today’s next generation AML software, analytics and case management can deliver better results than legacy anti-fraud systems. This supports Celent’s 2013 prediction that spending on AML compliance, including operations and technology is expected to reach US$5.8bn globally.

Intesa Sanpaolo Addresses AML Compliance

Financial institutions have acknowledged their need to respond to complex and continually changing organisational risk exposures. For example, Intesa Sanpaola, one of the top banking groups in Europe, which manages €18.5bn in 13 countries, recently undertook an AML initiative to ensure regulatory compliance and risk management using EastNets en.SafeWatch Profiling AML solution.

Responsible for ensuring that internationally 5,500 branches are compliant the 3rd EU directive, in compliance with group-wide AML policies, and mitigating correspondent banking AML risk, EastNet’s software suite was deployed using a pragmatic phased approach. The objective was to meet their challenging goal of ensuring regulatory compliance across multiple geographies – a tall order.

Stefano Cabianca, AML international officer at Intesa Sanpaolo, says: “EastNets strengthened and expanded our AML coverage and protection. We have been particularly impressed with the solution’s ‘zone concept’ that enables strict segregation of information pertaining to each branch for automated detection routing, whether on individual servers or, in our case, one combined server that will lower our maintenance and operational costs.”

Banks are under increased regulatory pressure and face even larger penalties for non-compliance. In 2011, there were fines in excess of US$500m in the US. Firms must fundamentally shift how they approach watch-list filtering because of growing Office of Foreign Assets Control (OFAC) and politically exposed person (PEP) lists. With non-compliance fines growing and firms now required to do more than just sanction screening through OFAC List matching, investment in profiling and watch-list filtering are rapidly being adopted.

“The challenges organisations face matching multi-cultural client names is daunting. Intesa Sanpaolo experienced just that and implemented en.SafeWatch Profiling, leveraging its offline analysis of customer behaviour to identify suspicious activity which could mask money laundering, terrorist financing, corruption, financing of illegal weapons or drug dealing,” says Paul Buelens, head of project management and compliance for EastNets.

PEPs

A key element in AML is the delivery of up-to-date information on which individuals or companies warrant further tracking such as PEPs. They represent a particular risk for fraud, either because of an existing position of power and influence or because of prior activities. While regulatory bodies provide often this data freely, more than 70% of banking institutions subscribe to a single source that combines multiple versions of such lists with other research information and perform the extra due diligence on identified PEPs.

For example, Intesa Sanpaolo integrated EastNets sanctions and PEP filtering solution and used its graphical user interface (GUI) for further detection analysis and leveraged fully configurable and self-steering workflows. Most financial organisations want easy to use and quick to deploy solutions. For the bank, the deployment was completed within three months from initiation to production including the integration to several back office systems. Analysts forecast that the straight forward, easy to deploy AML applications will have a greater adoption and acceptance level then more complex systems equipped.

The Analyst’s Perspective: AML

Celent reports that the AML systems providers that will capture the most marketshare in 2012 will offer browser-based interfaces, visualisation tools to depict relationships, robust analytic techniques, enhanced case management and workflow systems, compliance dashboards, account opening and watch-list filtering modules, integration with payment networks such as SWIFT and the ability to offer outsourcing of some AML services.

Packaged AML software reached about US$458m in 2011. Celent predicts that the compliance burden associated with AML will expand at a rate of 7.8% annually. Global spending on AML software will expand at a rate of 10.4% annually. The main drivers for AML compliance is regulatory requirements and reputational risk in terms of protecting the financial institutions brand.

Gartner views AML mainly as a regulatory compliance demand and finds that often financial firms overlook the business value and cost savings from integrating AML data and processes with enterprise risk, performance and customer relationship management.

The Tower Group adds that what is driving the growth is how financial institutions have a need to update technology despite tight budgets and deferred investment. Gartner, the Tower Group and Celent agree that AML vendors’ delivery innovations, pricing and expanded domain expertise are also keys factors impacting growth in the industry. The AML software providers have done a good job in being able to service the smaller institutions that may not need, or even be able to effectively use, a very advanced solution, as well as the financial giants that typically require sophisticated data mining and analytics just to keep track of their substantial volumes of accounts and transactions.

Gartner’s word to the wise is to first get management and board buy-in in order to help overcome political divisions and resistance from siloed business lines and units. With this in mind, Gartner preaches the adoption of a phased roadmap that could begin with a centralised case management system to unite disparate legacy AML and anti-fraud systems with the end goal being enterprise wide compliance.

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