Four Innovation Tactics European Banks Can Use for Their Anti-Money Laundering Programs

Michael Ficarro
Sales Consulting Manager, Oracle Financial Services

Why European Financial Institutions Need to Bring Innovation into their Anti-Money Laundering (AML) Programs

At Oracle Financial Crime and Compliance Management, we’re big fans of all sorts of innovation. For example: using machine learning for adapting detection models faster, incorporating graph analytics to help your team focus on their most important work, and utilizing text analysis for extracting valuable insights from unstructured data. But while we spend much time discussing how innovative technologies can help financial institutions improve overall effectiveness and efficiency across their anti-money laundering programs, we also like to explore how innovation can help address region-specific challenges. This post discusses how AML innovation can help European financial institutions address four key issues: COVID-19, increased lookback requests, new sanctions, and managing costs.

Amid COVID-19, Increase Flexibility

Global crises, like the COVID-19, present a perfect environment for spikes in financial crime. Understanding this inherent connection, the European Union (EU) has launched a new Financial and Economic Crime Centre within Europol to tackle an expected surge in financial crime in the economic downturn triggered by the pandemic. Combined with expanded law enforcement and regulatory focus across Europe, the growing threat brings new challenges to financial institutions and their fraud detection/anti-money laundering programs. To succeed when resources are strained across their business, financial institutions need to infuse new levels of agility, precision, and intelligent automation into their financial crime and compliance management programs.

Financial criminals are adapting to the pandemic’s disruption to the global economy―staying home yet finding new ways to conduct their nefarious business. Organizations, including Europol and UK Finance, have warned of investment scams that take advantage of the financial downturn and websites posing as charities that could target citizens, businesses, and governments. Besides, criminals are exploiting the pandemic to recruit money mules via WhatsApp, Twitter, and other social media channles. This may enable them to launder cash from human trafficking, terrorism financing, or drug dealing, and criminals may use real people’s identities to target individuals with clean financial histories or government organizations in need.

In one case, financial institutions and authorities across Germany, Ireland, and the Netherlands uncovered a COVID-19 fraud scheme involving compromised emails, advance-payment fraud, and money laundering. Over 1.5 million euros were frozen after procurement for face masks was exposed as being fraudulent. Authorities also recovered €880,000 before it could be transferred to the criminals under the guise of “emergency funding.” Quick coordination with INTERPOL helped lead to arrests in April.

As we have previously discussed on the blog, financial institutions must adjust thresholds or create new ones to detect new money laundering and fraud patterns emerging. They must remain agile to test, tune, and re-deploy existing and new rules and models, both supervised or unsupervised. Besides, financial institutions should streamline customer onboarding to navigate fluctuating business conditions over the next few years successfully.

Respond More Agilely and Efficiently to Burgeoning Regulatory Requests

Financial institutions face a growing financial crime compliance burden at a time when their resources face tremendous strains. For example, institutions across the EU see an increasing number of look back requests, which historically involve massive amounts of manual intervention and data. Look backs are transaction reviews mandated by banking regulators to assess the effectiveness of their regulatory reporting process. Regulators are employing look back mandates more often in recent years, beyond just examining an institution’s procedures and controls. Financial institutions are asked to rerun their detection with different thresholds or scenarios, which becomes a costly and arduous process for the bank’s compliance, operations, security, accounting, and IT functions.

Oracle Financial Crime and Compliance Studio is helping financial institutions across Europe to ease their look back burden. For example, Oracle enabled a European financial institution to replicate its existing system for look backs. Its current legacy system was not robust enough to process all of the data required. Another institution is leveraging Oracle Financial Crime and Compliance Studio to accelerate its look back process, which is currently very arduous―taking hours or days just to run one test. The bank will be able to use the solution as a secondary engine and conduct “what if” regulators require analysis and testing. Moreover, the financial institution will gain significant performance improvements and flexibility.

Streamline Sanctions Screening

We’re seeing a similar increased focus on elevating the intensity of sanctions screening. This is especially true of the U.S. sanctions, which have proliferated dramatically in recent years. This has had significant implications for EU companies, which seek to comply with “secondary sanctions” to continue to do business in the U.S. According to ControlRisks, the global sanctions landscape in 2020 is increasingly complex and less predictable. As the U.S. is introducing and enforcing sanctions more frequently, even with internal disagreement on the use of sanctions, the U.S. and EU are growing apart on sanctions policy. There are EU laws known as blocking regulations, which prohibit EU companies from following US secondary sanctions. The U.S. is encouraging its allies to adopt their sanctions, and extraterritorial sanction regimes are proliferating.

Adopting purpose-built applications powered by advanced analytics, such as Oracle Customer Screening combined with Oracle Adaptive Intelligence Foundation, can help European financial institutions wrangle these complex requirements―improving compliance while reducing costs and risk. We do this by keeping them up to date with sanctions changes and helping them discover and identify patterns. We focus on ensuring quality data, having the correct watchlist records, and segregating them accurately. We apply pre-defined rules that have been developed over many years based on real customer data and enhance that with machine learning to help analysts improve their decision making.

For example, a large multinational bank in Europe employs thousands of analysts to improve sanctions screening rules. But the process still leads to an excess of false positives. The bank is interested in leveraging the machine learning capabilities within Oracle Financial Crime and Compliance Studio, combined with Oracle Customer Screening, to reduce false positives and improve efficiency and quality of monitoring while providing more transparency around the results.

Find Additional Cost Savings

The pandemic has created financial upheaval amid weak investment returns with market uncertainty as to the backdrop. COVID-19’s effect on business continuity and long-term value creation is a priority for banks as they navigate the imminent economic downturn and eventual recovery period. The pandemic’s impact is responsible for half of the expected credit loss expense that European banks reported in Q1 2020. According to EY’s figures,credit loss averages about €700 million per financial institution. Banks must be efficient and agile in how they manage their ongoing as well as unanticipated costs.

Firms are choosing Oracle to help them navigate these challenges for the value we provide to their business. For example, a financial institution based in Spain turned to Oracle to help handle customer complaints―more crucial than ever, with millions of consumers facing financial challenges or obstacles. Through the integrated Oracle platform, analysts can investigate complaints and find recommendations on how best to close the complaint, whether formal or informal. Using our graph analytics capabilities, the institution can also view a graph that shows the network of individuals submitting complaints.

Another area of potential cost savings is leveraging the cloud. The cloud presents European banks an opportunity to create digital tools for consumers that provide speed and differentiation, thereby maintaining market share. Moving processes to the cloud, such as Know Your Customer (KYC) verification, holds promise for saving money and increasing efficiency. Keep in mind that European financial institutions are subject to rules and conditions―by the EBA, for example―before outsourcing to cloud providers.

Today, financial services must be agile and cost-efficient while meeting dynamic policy requirements and rising to the challenge of fighting sophisticated financial criminals. Multinational banks across the EU choose Oracle’s solutions to support monitoring, analysis, investigation, and resolution on a single platform incorporating the latest technologies.

Please message me to learn more or join the conversation by commenting below.

For more information, please visit:
Oracle Financial Crime and Compliance Management Solutions: oracle.com/aml
Oracle Financial Services: oracle.com/financial-services

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