How Decision Intelligence Innovation Optimizes Capital Markets Compliance

Regulatory focus on innovation and increasing pressure to improve efficiency and effectiveness for financial crime compliance has incentivized capital market firms to explore new innovative technologies actively. After years of managing volumes of low-quality alerts from traditional rules-based detection systems, coupled with internal budgetary pressure to decrease costs, the need to improve effectiveness and enhance efficiencies within compliance systems and investigations teams are recurrent themes throughout the industry.

To meet these challenges, firms are looking to optimize their infrastructures and achieve better returns from existing investments. artificial intelligence (AI), once a taboo term in the financial services industry, is now increasingly accepted – and even essential – to power advanced technologies, such as AI-enabled Decision Intelligence platforms. Numerous Tier 1 firms are already seeing results, including higher-quality data and more effective alerts; a significant reduction in unproductive alerts, known as false positives; and a massive reduction in time spent on complex investigations. Quantexa has also seen its customers gain the acceptance of auditors, model risk management, and regulators worldwide.

This article discusses how Decision Intelligence technologies are pioneering innovation in compliance for capital market firms globally.

Improving data capabilities

In September 2023 the Association for Financial Markets in Europe (AFME), in collaboration with PWC, published a paper titled "Artificial Intelligence: Challenges and Opportunities for Compliance". In this publication, AFME notes that 59% of survey respondents ranked the improvement of data capabilities as the greatest anticipated benefit of AI.

For capital market firms, solving data problems can be a huge challenge, given the sheer volume and complexity of datasets. While most firms collect a wealth of information about individual customers, many are challenged to effectively leverage that data to create a single internal view of their client across divisions, which is critical in addressing various compliance use cases and supporting business opportunities. AI-enabled Decision Intelligence platforms help solve this problem by unifying data across internal and external datasets to create a 360-degree view of customers.

Finding more risk

Low to non-existent SAR yields resulting from poor alert quality have long been a problem for Markets AML teams. Now, the lack of monitoring results is also increasingly a regulatory risk, where teams must attempt to defend the effectiveness of their detection programs in an environment where AML risk remains a top regulatory focus and enforcement priority. To address these challenges, firms must challenge the traditional means of detecting risk, which historically focused narrowly on transactions for a single customer or account at a time and relied solely on a subset of internal data.

Approaches such as Quantexa’s Contextual Monitoring capability offer a distinct alternative to traditional rules-based monitoring by using Entity Resolution to unify internal and external data and applying advanced analytics across a customer’s vast network of relationships, transaction counterparties, and behavior patterns. This approach is now broadly accepted, as evidenced by this Financial Action Task Force (FATF) paper from 2021, which defines Contextual Monitoring as “the ability to join and connect data together from different systems and sources to create context and meaning to identify significant connections and improve accuracy.”

Using holistic surveillance

For capital markets firms to manage various forms of risk effectively and holistically, data must be accessed from numerous silos and systems. Sophisticated firms employ several monitoring systems, such as those for trade surveillance, e-communications, fraud, AML, and Control Room monitoring. While many of these systems rely on similar customer and transaction data inputs, internal risk teams rarely share data lakes or benefit from the learned intelligence of other systems to view the customer in the totality of the risks. Using Quantexa, firms can harness the output from various internal systems, enrich datasets with external intelligence, and create a truly holistic view of a customer’s risk attributes across multiple risk types.

Creating investigation efficiencies

Financial crime investigations are complex, resource-intensive, and time-consuming. Firms spend, on average, 60% to 70% of case investigation time simply finding and preparing data before an investigation can even begin. Searching across multiple trade booking and settlement systems, examining hidden connections between market participants using external data, working around data quality issues, and manually manipulating data in spreadsheets is time-consuming, and relies heavily on the skills and knowledge of the individual investigator to locate and manipulate data.

By unifying internal and external data, Quantexa's technology overcomes data quality issues, automatically identifies connected parties and intelligence, highlights where risks exist, and clearly displays only the information relevant to the investigation.

This allows investigators to focus their time on value-added analysis and decision-making, which significantly expedites the pace at which investigations can be completed. Capacity freed up by eliminating the non-value-added activities can be redirected toward complex investigations, thematic analysis, and rapid response activities. Additionally, by removing reliance on individual investigator skills to locate and curate data, investigation teams can deliver more consistent results across cases, a critical measure of an effective investigations team.

Quicker, easier, more informed decision-making

There is no doubt that compliance still requires highly skilled subject-matter experts and decision-makers. However, when enhanced by AI-enabled Decision Intelligence in the right way, those valuable resources can be empowered to make decision-making easier, quicker, and more informed. Get in touch to see how we can help you optimize your compliance, risk, and data platforms and achieve industry-leading results.