Report Download

The Path to Modernising

Anti-Money laundering Operations

An IDC InfoBrief, sponsored by BAE Systems

In the future, a bank's expertise in Anti-Money Laundering (AML) will be defined by real-time ability, agility, and adaptiveness to regulations. Banks will be enabled by Big Data Analytics and Artificial Intelligence (AI).

 

The current state of AML operations in several banks indicates a long journey to this future. How can banks build the necessary foundations, and move quickly towards truly modern AML operations?

Big Shifts, Big Impact

The convergence of big trends has changed financial services as we know it. How will these trends change the way banks deal with transaction-based risk, better position themselves, and react against the developing threats of financial crime?

SHIFT FROM PRODUCT-CENTRIC TO CUSTOMER-CENTRIC BUSINESS MODELS
SHIFT FROM PRODUCT-CENTRIC TO CUSTOMER-CENTRIC BUSINESS MODELS
TRANSITION TO
OPEN BANKING PLATFORMS
TRANSITION TO
OPEN BANKING PLATFORMS
EXPONENTIAL GROWTH
IN TRANSACTIONS
EXPONENTIAL GROWTH
IN TRANSACTIONS
  • New business models call for sharing high volumes of data, which can be turned into real-time, actionable insights - useful for the bank, customer, and third parties.
  • Upsurge of real-time processing of data
    • By 2020, 25% of data is expected to be generated, processed and consumed on a real-time basis.
  • By 2020, >80% of global Tier 1 and 2 banks will have an Open Banking roadmap.
  • Open Banking will increase collaboration between banks and FinTech companies.
    • By 2020, the top 250 banks in the Asia/Pacific region will have an average of 6 key Fintech partnerships.
  • Because of digital channels, the frequency, extent and duration of bank-customer interactions increase.
  • eCommerce activities continue to surge, increasing the demand for eCommerce platforms and services.
    • From 2019 to 2021; >30% in certain Asian countries and >35% in the United States (US) and Japan.

 

IMPACT

Use of “On-Demand” data services change “Know Your Customer” (KYC) and Customer Onboarding.

IMPACT

More considerations for Data Privacy and protection as third parties are involved in critical bank-to-customer interactions.

IMPACT

More transactions to track and interpret.

Big Shifts, Big Impact

The convergence of big trends has changed financial services as we know it. How will these trends change the way banks deal with transaction-based risk, better position themselves, and react against the developing threats of financial crime?

SHIFT FROM PRODUCT-CENTRIC TO CUSTOMER-CENTRIC BUSINESS MODELS
SHIFT FROM PRODUCT-CENTRIC TO CUSTOMER-CENTRIC BUSINESS MODELS
  • New business models call for sharing high volumes of data, which can be turned into real-time, actionable insights - useful for the bank, customer and third parties.
  • Upsurge of real-time processing of data
    • By 2020, 25% of data is expected to be generated, processed and consumed on a real-time basis.

IMPACT

Use of “On-Demand” data services change “Know Your Customer” (KYC) and Customer Onboarding.

TRANSITION TO OPEN BANKING PLATFORMS
TRANSITION TO OPEN BANKING PLATFORMS
  • By 2020, >80% of global Tier 1 and 2 banks will have an Open Banking roadmap.
  • Open Banking will increase collaboration between banks and FinTech companies.
    • By 2020, the top 250 banks in the Asia/Pacific region will have an average of 6 key Fintech partnerships.

IMPACT

More considerations for Data Privacy and protection as third parties are involved in critical bank-to-customer interactions.

EXPONENTIAL GROWTH IN TRANSACTIONS
EXPONENTIAL GROWTH IN TRANSACTIONS
  • Because of digital channels, the frequency, extent and duration of bank-customer interactions increase.
  • eCommerce activities continue to surge, increasing the demand for eCommerce platforms and services.
    • From 2019 to 2021; >30% in certain Asian countries and >35% in the United States (US) and Japan.

 

IMPACT

More transactions to track and interpret.

Pulled in Many Directions:

The Complicated Journey to Modernised AML Operations

SUSPICIOUS ACTIVITIES

EVERYWHERE

BURDEN OF

COMPLIANCE

NEW REGULATORY DIRECTIONS

PROBLEM WITH

LEGACY

Pulled in Many Directions:

The Complicated Journey to Modernised AML Operations

Suspicious Transactions Increase

  • Growth in reported suspicious transactions (per region):

In the EU

(2006-2014)

In Australia

(2016-2017)

In Malaysia, Hong Kong and Singapore

(2016-2017)

  • Most commonly cited in suspicious transaction reporting (STR):
    • Financial fraud
    • Illicit cross-border money transfers
    • Drug trafficking

Spend, Spend, Spend!

Global spending on compliance-related software is estimated to increase from US$8.5 billion to US$11.8 billion between 2016-2021.

  • 42% is associated with AML compliance
  • Technology spending on AML is expected to grow 15% a year over the next 5 years

Impact to the Bottom Line

  • Case 1: Global Tier 1 bank in the UK increased spending on "regulatory programs and compliance" by 12% in Q1 2017, while profit decreased by 19% at the same time.

 

  • Case 2: Between 2011-2015, a global Tier 1 financial services provider increased its compliance headcount from 24,000 to 43,000 and increased spending to US$9 billion (>15% annual growth).

Problem with Legacy

  • Legacy systems create lags in detecting, reporting and investigating suspicious activities.
of analytics is not integrated effectively into business processes.

Less than 10% of suspicious activities are investigated in the EU, underscoring manpower challenges in risk investigations.

New Regulatory Guidelines to Watch

The 5th EU AML Directive

 

The July 2018 directive requires EU member states to translate AML regulations into national law by January 2020 to improve:

  • Transparency with minimum restrictions to data access
  • Information sharing through central bank account registers
  • Scrutiny across alternative transaction modes (virtual currencies, pre-paid cards)

Joint Statement by US Government Agencies

 

Five federal government agencies issued a joint statement encouraging banks to use "innovative approaches" to meet Bank Secrecy Act/Anti-Money Laundering (BSA/AML) compliance obligations. Three areas of focus:

 

  • Risk identification
  • Transaction monitoring
  • Suspicious activity reporting

Continue exploring how banks can build the necessary foundations to move quickly towards truly modern AML operations. Enter your email address below to download the full report.

Reproduced with permission from a BAE Systems-commissioned IDC Infobrief, "The Path to Modernising Anti-Money Laundering Operations", May 2019.