- 55 money laundering fines issued in 2021 totaling approximately $1.6 billion in value
- Contextual Risk Management is a holistic approach
- Now is the time to begin implementation
In a recent article from Compliance Week, Editor in Chief Kyle Brasseur reviews the AML fines levied to to banks in 2021. According to the Kroll’s Global Enforcement Review 2022, regulators issued a total of 55 money laundering fines in 2021, totaling approximately $1.6 billion in value -- the highest number of fines observed by Kroll since 2016, which is as far back as its data tracks.
“Now that AML-related concerns and failings have resulted in many large banks being sanctioned, regulators are beginning to pay increased attention to other areas of financial services,” opined Malin Nilsson, managing director of financial services compliance and regulation at Kroll, in an emailed press release.
To address growing issues with regulatory compliance, NICE Actimize recently examined the challenges facing financial services organizations (FSOs) in an article by Adam McLaughlin, their Global Head of Financial Crime Strategy & Marketing, AML.
McLaughlin notes that, given the sea of information the global economy produces, it's nearly impossible for FSOs to fully understand all of the risks to which they are regularly exposed.
While there are real and significant challenges to ensuring bad actors don’t slip through the cracks, traditional financial crime risk management approaches don’t give FSOs the best chance of success. They struggle to:
- Understand the true counterparties and beneficiaries of transactions
- Provide continuous risk assessment (often taking a static, periodic approach)
- Proactively monitor and move beyond event-driven risk management
- Consider the broader context of activities and behavior for all entities involved
- Cut through the noise and deliver relevant, accurate information for financial crime monitoring
He also identifies a backdrop of growing financial crime concerns:
“As far as how much money is laundered every year… the latest polls are showing us it’s about $6 trillion, and that’s back in 2019… Looking at SAR numbers, the UK saw an increase of 31 percent from 2020 to 2021… Fines are on the rise. From 2019 to 2020, we saw an uptick of 50 percent.”
- Ted Sausen, AML Subject Matter Expert, NICE Actimize
The Solution: Contextual Risk Management
The ultimate solution – a contextual risk management approach.
FSOs require a holistic approach to financial crime management that covers all data points across different business lines and functions to understand each customer and their evolving risk profile fully.
Contextual risk management is just this. The end state of a contextual risk management approach is a centralized hub of continuously updated information that shows the context of activity for entities and builds an accurate picture of the risk each entity presents.
Obtaining a contextual understanding of each entity’s risk means connecting all detection systems and data to find a single customer truth that is always accurate and up to date for each and every customer. This single customer truth, including a single accurate risk profile and trusted score, has cross-functional applications for AML, fraud, and customer decisions around lending and credit.
Indeed, applying machine learning and network analytics to explore networks, discover risks, and continually monitor for changes allows greater detection of suspicious activity.
Think of contextual risk management as the heart of your financial crime operations. It is the muscle that drives everything, pumping information out and fueling all the other systems at work. These systems work best when they can rely on a shared source of accurate information. When they act alone, they remove context, lose the compounding benefits of working together, and open themselves to significant risk.
Multiple Tools for Stronger Mitigation
McLaughlin notes that FSOs can take steps today to implement a contextual risk management approach for customer risk management. Multiple tools work together to cover data points across functions.
When it comes to compliance -- particularly for OFAC, BSA/MLA, Reg CC, UCC, and KYC -- FSOs need to analyze all of the transactions that accounts are performing, including checks. Check payments have largely gone under-the-radar when it comes to compliance, but this is often a mistake by FSOs. By using technology to extract data from check payments -- including payee and payor data -- FSOs are able to flag suspicious or anomalous transactions for review, increasing their fraud and compliance mitigation.
Bottom line: Combining multiple systems to create a contextual risk management approach created a more compliant environment, while mitigating both fraud and compliance risks.