Long-term goal is to integrate AML and anti-fraud efforts

July 26, 2011

http://www.ababj.com/tech-topics-plus/anti-money-laundering-trends-moving-to-enterprise-application-2151.html

Spending on anti-money laundering compliance, including operations and technology, will reach $5.8 billion globally in 2013, including $1.4 billion on internal and external technology spending, according to Celent’s new report, “Trends in Anti-Money Laundering 2011.”

Key findings of the report include:

Celent estimates in 2011 operations accounts for $3.8 billion and technology, including internal and external IT spending, makes up the other $1.2 billion. Of the technology spending, packaged AML software will reach $458 million in 2011. Celent projects that the overall AML compliance burden will expand at a rate of 7.8% annually. Global spending on AML software will expand at a rate of 10.4% annually, to $557 million in 2013.

Nearly ten years after 9/11, AML compliance continues to evolve, due to increasing regulatory demands on the one hand and developing organization and technology best practices by financial institutions on the other. As a result, the cost of running an AML compliance program continues to rise. Faced with increasing pressures in terms of both compliance and costs, financial institutions are seeking efficiencies in operations and technology. This need to achieve greater efficiencies is driving a trend towards centralization and standardization of AML operations, as well as integration of AML and anti-fraud programs.

Most respondents to Celent’s survey (42%) cited regulatory requirements as the main driver for AML compliance. However, a substantial segment (25%) named reputational risk and protecting the brand as the primary purpose of their AML efforts. In practice, these drivers are interdependent.

Increasingly, financial institutions are responding to challenges by adopting elements of an enterprisewide compliance approach, with the ultimate-and quite long-term-goal of integrating their AML and antifraud operations and technologies across business silos and, for multinational firms, geographical regions.

Financial institutions need to carefully assess the vendor solutions that can assist them. Aside from the vendor's ability to deliver on implementation and after service, the three main areas institutions will want to evaluate are scalability, sophistication of analytics, and case management capabilities. Needs in these areas will differ according to the size of the institution, business line, and existing solutions and compliance procedures already in place. Smaller institutions may not need, or even be able to effectively use, a very advanced solution, whereas top-tier institutions may require sophisticated data mining and analytics just to keep track of their large volumes of transactions and accounts. Institutions will know their own scalability needs, but should be careful to perform due diligence on the claims made by vendors.

Once a solution meets the institution’s analytics and scalability requirements, strong case management functionality is crucial. The biggest headache compliance departments face is how to sift through the voluminous alerts generated by AML systems, divvy them up among their analysts, and investigate them effectively. These difficulties will be amplified when antifraud and AML are placed on the same platform, making strong case management capabilities even more urgent.

Building the business case for an enterprisewide approach to compliance is not easy. To justify the investment, compliance officers will need to gather evidence from case studies of other financial institutions that the new antifraud products of AML vendors are effective and can produce incremental improvements in loss prevention enough to create an ROI. Top management and board buy-in to the initiative is important in overcoming political divisions and resistance from siloed business lines and units. Finally, a phased roadmap, perhaps starting with a centralized case management system to unite disparate legacy AML and antifraud systems, will help provide a workable and achievable blueprint for the journey towards enterprisewide compliance.