Automated AML Tools Prove Popular For Compliance Efforts

A recent survey of banking executives showed the overwhelming majority plan to increase spending on automated Anti-Money Laundering (AML) transaction monitoring and on staff to help strengthen their compliance programs.

Darren Donovan, head of KPMG’s Forensic Services said the survey, administered by KPMG during the Florida International Bankers Association Annual AML Compliance Conference, showed that some 75 percent of the respondents said they plan to either implement an automated AML transaction monitoring system, or upgrade their current one.

Of the respondents, the 29 percent who said they don’t use automated tools, “They probably also stand a pretty good chance of missing things, due to level of information that must be processed,” said Donovan. The automated functions of an AML monitoring tool helps with aggregation, a manual process can’t do that,” he added.

If an institution is deficient in AML regulatory examinations, “it is likely that they usually are deficient in other areas as well,” he noted. Regulators need to have the ability to “look back” at transactions over a period of time, on a historical level for the purpose of detecting suspicious activity. Automated tools are popular with institutions for that very reason, Donovan pointed out, as it gives the BSA officer, and the regulators the ability to look for certain anomalies. “You can sort through millions of transactions and decide if they are legitimate, or if they need closer inspection,” he explained.

The KPMG survey of U.S. and international executives found that more than 71 percent of respondents said their financial institution has an automated system to help monitor transactions and identify potentially suspicious activity. In addition, 68 percent of the respondents said they will be working to identify gaps and potential areas of enhancements to bring their automated system in line with leading financial services industry practices.

“The regulatory environment and the need for accurate and timely detection of potentially suspicious activity and the reporting of Suspicious Activity Reports (SARs) demand the continued investment, said Donovan. “But we are noting an ongoing struggle in the market to find and implement the appropriate solutions in line with regulatory requirements and expectations to get the job done.”

For the institutions that don’t have an automated tool for BSA to help detect suspicious activity, Donovan suggests, “Don’t assume automatically that your institution can’t afford it. There are other intangibles to associate with a BSA exam that turns up something bad.”

To factor in the reputational risk is important. “Institutions need to challenge themselves to look at the possibility of loss of reputation, and the regulatory risks associated with a BSA examination,” he explained.

Beyond an automated tool from a third party vendor, in-house tools can be developed. “The more that you automate the process, the better chance you have in finding that anomaly among the thousands upon thousands of transactions each day. Remember, the criminals always try to fly under the radar.”

Look at “Know Your Customer” (KYC), Donovan said. “Your customer service reps have to know their customers, and need to be able to spot something that doesn’t seem right.” The best action is deterrence and detection, he noted, “Have them go in and flag certain transactions that don’t fit in the norm.”

Donovan’s final points: “My advice to institutions is: Take heed. The environment is changing. Don’t create an Achilles’ heel in your AML/BSA compliance efforts. You need to keep current with your peers, make sure you are comparable to them. If you don’t have funding, think how to build a business case to build your program up. If cost is a problem, find out how others are doing it, seek out the solutions that work for others, and if you can’t afford it, make sure you’ve done everything you can to keep the compliance effort going forward. Be vigilant, own the process, know what is in your policies and correct the gaps as you find them.”

About the Author

Linda McGlasson

Linda McGlasson

Managing Editor

Linda McGlasson is a seasoned writer and editor with 20 years of experience in writing for corporations, business publications and newspapers. She has worked in the Financial Services industry for more than 12 years. Most recently Linda headed information security awareness and training and the Computer Incident Response Team for Securities Industry Automation Corporation (SIAC), a subsidiary of the NYSE Group (NYX). As part of her role she developed infosec policy, developed new awareness testing and led the company's incident response team. In the last two years she's been involved with the Financial Services Information Sharing Analysis Center (FS-ISAC), editing its quarterly member newsletter and identifying speakers for member meetings.

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