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The battle being fought by financial institutions worldwide against those attempting to launder money gained illicitly to fund terrorism, human trafficking, and other crimes is nothing new. Regulators have continued to raise the bar for financial institutions to reduce the flow of illicit funds and banks have responded by spending millions in time, money, and human resources in a race to comply.
Add to this the constantly evolving financial landscape and the increasing challenges of correspondent banking, capital markets, and trade finance, and it’s clear that traditional anti-money laundering (AML) practices, which in many cases are still manual, time-consuming, and produce high false-positive rates, need to change.
To address existing and emerging AML risks more effectively, as well as manage the cost of compliance, AML leaders need data-driven, intelligent tools that can more quickly and optimally connect the dots across datasets to conduct contextual financial crime investigations more efficiently.
New solutions and technologies, such as Entity Resolution, dynamic segmentation, network link analysis, and advanced analytics are key to delivering greater risk coverage as well as efficiently and effectively disrupting financial crime.
No one knows these challenges better than David Howes, Global Head of Financial Crime Compliance, at Standard Chartered Bank.
In a recent interview with Quantexa CEO Vishal Marria, David addressed some of the challenges financial institutions are facing today, how technology is helping to meet these challenges, and what the future looks like in terms of the need for financial institutions to up their game now to be ready for the challenges of tomorrow that are sure to come as the financial and technology landscapes, as well as the skillsets of criminal organizations, continue to evolve and expand.
The global pandemic had a huge impact on the financial sector in that it forced financial institutions to digitally transform at speed. However, it also opened the door for criminal actors seeking new opportunities.
Opening the door to fraud: As David described, “We all had to adapt to different ways of working… Criminal enterprises are no different.” The pandemic opened lots of opportunities for criminals to go after government relief schemes, take advantage of the general nervousness in the population to commit fraud, and go directly after the banks themselves with fraudulent claims.
Changes in money-laundering tactics: As David described, “As cash becomes less prevalent for transactions and people move to whether it’s cryptocurrencies or it’s just digital variants of fiat currencies, that’s changing how that process works.
“The money mule increasingly to worry about is not the cash money mule, it’s the digital money mule, and it’s the digital money mule in the form of an offshore shell company banking in a market on the other side of the world.
That is the trend I fear is emerging in relation to how you really clean funds through the international financial system now. That kind of a trend I do not think is going away, and we will be grappling with it for many years to come.”
Global Head of Financial Crime Compliance at Standard Chartered Bank
The problem as David sees it revolves around data analytics, technology and processes. “The problem,” he described, “is that the system as a whole is not living up to the opportunities of using financial tools to tackle all of the harms that come from financial crime.
“Banks generally, and Standard Chartered definitely, have made significant investments in financial crime compliance. Tens of billions of dollars a year are getting invested, but the problem remains.
“At the end of all that work, as a society, we’re still confiscating maybe only 1% of the proceeds of crime, and so much of that investment that I’ve talked about goes to waste.
“Too much of our time is going to what a colleague of mine has described as ‘chasing the innocent around the system,’ and I think that’s because we’ve still got too many manual processes; silos in our data, but, paradoxically, too much data, [and] a lack of a capability to effectively integrate that [data] and make the best possible use of it. That drives a significant amount of wasted energy to get to the actual financial crime cases that true effectiveness requires us to get to.
As a banking leader, Standard Chartered Bank has invested heavily in new technologies such as Decision Intelligence to improve data analytics, join siloed information together, focus on data analytics, and maximize values from data. This ultimately helps the bank to improve client onboarding as well as its controls and processes across the board.
David pointed to three strategic areas where Quantexa solutions are making a positive impact on investigations.
Applying analytics: “An example in this space, David explained, “is using data from many years of investigating many tens of thousands of alerts, identifying the ones that have a greater level of productivity, and using that to risk-weight those alerts and inform which cases get elevated for a human analyst to investigate.”
Automation: “The second area is the application of robotics and machine learning to automate more,” David continued. “‘Can we take the human out of the process in some of those simple stages?’”
Gaining a better client view: “The final piece I’d highlight,” David continued, “is the work we’re doing with [Quantexa] in creating vastly better access to contextual information around the client, [which] helps us do a couple of things. First, I think it can help standardize some of the volume of work that we do by giving analysts better frames of reference for making decisions about those alerts that are getting generated. The second area, then, is how we work more complex cases. It’s enabling us to identify links between different actors in the system that we might not otherwise find, and I think that’s really exciting.”
With Standard Chartered active in 60 markets globally, the bank is doing a lot around leveraging its scale for the benefit of tackling financial crime by connecting data from those different countries and bringing back together some of the processes and intelligent capital that it has built in-country to help build a much more global function.
“There’s always going to be more to learn,” David said, “so the tooling around context and linking data points that we otherwise might not, that’s going to be the secret sauce for the future. An example I’d highlight in that space that we’ve been getting some good results from is starting to bring together transactional data with channel data.
“For example, if we identify a bad actor based on transactional typologies and the type of traditional AML rules that we run, we might start on the back of that, looking at some of the other counterparties that we identify in our bank and asking the question: ‘Are they also bad actors?’
“If, however, we start adding to that other data points—things that like common email addresses in CDD records across actors or common device IDs being used down digital channels to access accounts—we might be able to identify, and have had some experience identifying, parties that wouldn’t necessarily show up through that traditional transactional analysis and are instead going under the radar.
“And when we bring all of those things together, actually we get a much higher yield for the cases that we put together in terms of identification of suspicious activity that we can then take some action on. So, I think that’s going to be the future: It’s how we bring disparate data points together better to target the risk that some of the traditional techniques, in themselves, wouldn’t so easily surface.”
In a collaborative report with Quantexa and Aite on ‘Raising the bar of AML detection and investigation, Aite Group interviewed executives from Standard Chartered about its deployment of Quantexa’s technology to discover more accurate insights associated with integrating next-generation AML technology.
The case study provides a detailed look at how Standard Chartered’s AMLs leaders worked with Quantexa to find a more efficient solution that would leverage newer technologies as well as advanced analytics, and that would better complement its existing financial crime systems.
Quantexa’s Entity Resolution technology allows users to explore seven years of transactional data to create a complete, holistic view of customer transaction networks and their counterparties—information critical to Standard Chartered’s new approach to fighting financial crime.
Looking ahead to applications of Decision Intelligence in the future, David sees some incredible potential.
“I think, interestingly, for Standard Chartered, and for others, I expect, as well, is: ‘What’s the scope more effectively to use some of those assets for other use cases, for other business applications?’
“And in a sense, some of the work we’ve done on cleaning data, wrangling data, assembling data over many years has front-run an agenda within organizations around better use of data and analytics, not just for risk management purposes, but for the development of the business, for new business opportunities. And ultimately that’s where it’s got to get to.
“The bringing together of these kinds of risk and control disciplines with the way the bank serves its clients, it all ultimately comes down to a clearer understanding of who your client is, what’s expected for them, and then servicing that where it’s legitimate and stopping it where it’s not.”
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