The Summit’s discussions revolved around the necessity of a strong control environment, the burgeoning role of artificial intelligence (AI), importance of enhancing client experience, perpetual KYC (Know Your Customer), and the call for greater collaboration within the financial sector.
Following the 1LOD Financial Crime Summit in New York, Diane Eshleman, Head of Americas and Global Chief Sustainability Officer, along with Tracey Allen, Global Head of CLM Services, discuss key takeaways from the event. The Summit’s discussions revolved around the necessity of a strong control environment, the burgeoning role of artificial intelligence (AI), importance of enhancing client experience, perpetual KYC (Know Your Customer), and the call for greater collaboration within the financial sector.
The Pillars of a Strong Control Environment
The essence of fighting financial crime is rooted in a robust control environment with defined roles and vigilant oversight. Effective policies, with procedures which can be dynamic, adapting alongside the business, supported by regular updates to rule-based systems and a unified client perspective via integrated tools. The strategic engagement of third-party service providers fortifies this environment, while ensuring that accountability remains internal.
Norton Rose Fulbright’s ‘Financial Crime Outlook: 2023 and beyond’ underscores the necessity of strong governance and efficient processes to manage financial crime risks. By concentrating resources on high-impact activities and fostering constructive collaboration among similar functions, organisations can achieve operational efficiencies. This approach is enhanced by a coordinated defence strategy and metrics that promote ongoing enhancement. Additionally, risk segmentation now extends beyond traditional categories to encompass ESG (Environmental, Social and Governance) factors and third-party risks.
AI: A Game-Changer in Financial Crime Prevention
Artificial Intelligence (AI) is transforming financial crime prevention, streamlining data management, enhancing client onboarding, while improving transaction monitoring and policy compliance. As regulatory bodies shift from caution to embracing AI’s potential, the technology is increasingly integrated into strategies to tackle complex financial crimes. UK Finance ‘Three Financial Crime trends for 2024 every bank should know’ article emphasises the importance of adopting AI to refine compliance systems and up-skill staff, particularly in AI explainability and sanctions compliance, to navigate the intricate financial and geopolitical landscape.
Furthermore, AI is poised to facilitate collaboration between public and private sectors, especially in data sharing and intelligence. Despite the risk of AI being exploited by criminals, its advanced predictive analytics are expected to interrupt criminal activities, such as money laundering and fraud. Deloitte’s ‘The Future of Financial Crime’ insights reveal that AI can automate most manual tasks in financial crime management, potentially reducing manual case interventions by 30-40% and allowing staff to concentrate on more strategic initiatives. This automation heralds a significant shift in AML (Anti Money Laundering) operations, promising enhanced efficiency and effectiveness.
Rethinking Client Experience
The Summit emphasised the importance of real-time access to information and to a single customer view that transcends individual products or services. The digital onboarding platform is envisioned as a one-stop request point for documents, whilst also providing transparency on the status of applications. The Summit’s focus on real-time information access and a unified customer view is pivotal in the context of financial crime prevention. Financial Crime Academy ‘From Risk to Resilience’ 2024 blog outlines that real-time monitoring is essential for detecting and preventing fraudulent activities as they occur, especially with the increasing speed of financial transactions.
Kroll’s 2023 Fraud and Financial Crime Report reveals that over USD 800 billion is laundered annually, highlighting the scale of the challenge faced by financial institutions. Moreover, the report indicates that UK consumers lost a combined £1.2 billion across all fraud types last year. These figures demonstrate the significant impact of financial crime and the importance of innovative solutions like real-time data access and integrated customer profiles in combating these illicit activities.
The Importance of Perpetual KYC
Perpetual KYC (Know Your Customer) represents a comprehensive, rules-driven strategy that integrates risk-based scenarios and analytical methods for pinpointing issues with associated entities. AI is leveraged to sift through data, minimising irrelevant alerts, and enhancing the accuracy of data gathering, control mechanisms, and information updates.
According to the FCA’s ‘Reducing and preventing financial crime’ 2024 report, advancements in technology are reshaping the detection of fraud and money laundering. However, as AI becomes more prevalent, there is a notable rise in the complexity, frequency, and severity of cyber fraud, cyber-attacks, and identity theft. This method also includes strategies for cyber risk reduction, preventing sanction breaches, identifying terror funding, and allocating routine alert reviews to cost-effective regions, while more senior experts handle intricate cases.
Greater Collaboration
The industry is at a crossroads, considering how to foster collaboration across banks without infringing on privacy rights or alarming regulators. There is a potential for a standard risk framework across all regulatory bodies, and regulators will be encouraged to share threat assessments with banks to bolster their defences against threats. The advantages of sharing information about bad actors on a global scale was also discussed.
Summary
The Financial Crime Summit in New York highlighted the critical need for strong control environments, the transformative impact of AI, the importance of client experience, importance of continuous KYC, and the necessity for collaboration. As financial crime becomes increasingly sophisticated, our approaches to preventing it must evolve in tandem. The insights from the Summit pave the way for a more secure and efficient financial future.
How Delta Capita can help
If you are interested in learning more about how Delta Capita can support your KYC delivery, assessment of CLM target operating models or data management, please contact us today.
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