AML Technology/Software

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AML Technology/Software
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Agenda
Business drivers and requirements The role
and capability of technology Assignment
defining alerts (risk views)
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Business Driversand Requirements
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Key Drivers

• Technology continues to be a weapon for
  criminals, exposing enterprises to various forms
  of money laundering.
• face-to-face is difficultnon face-to-face is
  encouraged (ATM, Internet, postal)
• increased volume and speed of transactions
• centralized processing of electronic payment
  systems

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Key Drivers

• Competitive pressures are forcing businesses to
  find strategies to increase profitability and cut
  costs
• streamlining procedures
• transitioning manual to automated procedures

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Key Drivers
September 11th 2001 caused intensifying AML
policies in the US, and producing a ripple effect
internationally
USA Patriot Act
2001 2002 2003 2004 2005
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The Role and Capability of Technology
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Managing AML with Technology (I)

• Risk-based Approach
• Many regulators are favouring risk-based regimes
  over single or standard approaches
• seen as more proportionate and cost effective
• does require industry to think more about risk
• more difficult than a standard approach

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Managing AML with Technology (II)

• Risk-based Approach continued
• requires firms to put in place measures and
  controls
• document these and demonstrate they are being
  followed
• establish a systematic methodology that is
  relevant to the risk profile
• be alert and adaptive to new types of risk

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Managing AMLwith Technology

• Four key areas where technology can make a
  significant impact
• 1. Customer identification
• 2. Transaction monitoring
• 3. Record-keeping
• 4. Reporting

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1. Customer Identification

• Can you trust her?
• How technology can help
• Account opening
• Customer identification FATF, Basel and
  Wolfsberg recommend more than just Name and
  Address
• Customer verification systems can check your
  customers against various black lists
  automatically (OFAC, FATF-NCCT, PEPs)
• Ongoing diligence

?
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2. Monitor Transactions

• Criminals will invade your financial Institution
• no matter how good the customer identification
  program you have in place is
• Now what?

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How to Monitor?
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ATM
cash
Internet
foreign banks
wires
Transaction Filters
Good news They focus on detecting names on watch
lists (like OFAC) Bad news This function, while
necessary, does not itself satisfy the guidelines
of the FATF, Basel II, or USA Patriot Act, for
example
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ATM
cash
Internet
foreign banks
wires
Rules Engines
Good news Simple to implement, simple to
understand, does not require historical data Bad
news Can not detect unknown activity, may miss
fraudulent or ML activity if too narrowly
written, or if written too broadly, will increase
number of false positives
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ATM
cash
Internet
foreign banks
wires
Profiling
Good news Builds up a history and pattern of
transactions, looking at the transaction in its
context rather than the individual transaction
fewer false positives Bad news Requires a great
deal of historical data for the best results
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ATM
cash
Internet
foreign banks
wires
Neural Networks
Good news Can remember past patterns of ML
activity, and can extend this knowledge on future
predictions possible to recognize similarities
in ML patterns Bad news Cannot recognize a new
form of ML if the pattern is different from a
programmed pattern results in large numbers of
false positives
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ATM
cash
Internet
foreign banks
wires
Link or Network Analysis
Good news Finds relationships between separate
entities involved in financial transactions able
to follow a money launderers trail Bad news
Relationships are limited to the transaction data
within the bank needs to be combined with other
monitoring approaches to be most effective
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The Best Approach?
ATM
cash
Internet
foreign banks
wires
A Combined Approach
A combined approach that includes filtering,
profiling, rules and link analysis will deliver
the best results, with the fewest false
positives, and greatest chance of finding
fraudsters and money launderers
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3. Record Keeping

• Technology automation streamlines record keeping.
  What else can it do?
• Collects evidence digital file folder
• Manages cases a case management system
  organizes, prioritizes and manages cases within
  one integrated system
• Generates audit trail all actions automatically
  recorded for review by regulators

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4. Reporting

• Automated reporting saves significant time and
  money. How so?
• Automated regulatory reporting reduces or
  eliminates manual filing
• Better visibility into crime for better
  decision making, and insight into risk

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Reminder

• software reminders
• Assistant only responsibility compliance- or AML
  officer for AML remains
• Cannot replace professional judgment
• Automatic delegated compliance review
  understanding the software is crucial

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Reminder

• Parameter reminders
• Parameters inappropriate setting causes reduced
  added value or overload of follow up related work
• Parameters testing the output before going life
  alerts in production environment need follow up

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Questions
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Assignment

• CREATING
• ALERTS RISK VIEWS