January 31, 2018

THE FUTURE OF ENTITY DUE DILIGENCE

January 31, 2018/ Keith Furst

The world has gone through an incredible amount of technological transformation over the past ten years. While it may seem hard to imagine that change will continue at this pace, it’s not only likely to continue, but it will accelerate. There are various functional areas within institutions that support global commerce, but some have been laggards in adopting new technology for a plethora of reasons.

Structural market trends will force organizations to innovate or they will be subject to consolidation, reduction of market share, and, in some circumstances, complete liquidation. Future proofing the entity due diligence process is one key functional area that should be part of an organization's overall innovation road map because of the impacts of trends such as: rising regulatory expectations, disruptive deregulation initiatives, emergence of novel risks, explosion of data, quantifiable successes in artificial intelligence (AI), and changing consumer expectations.

September 22, 2017

MERCHANT-BASED MONEY LAUNDERING PART 3: THE MEDIUM IS THE METHOD

September 22, 2017/ Keith Furst

The previous editions of this series on merchant-based explored the many manifestations of the dark side of the terminal, including suspicious transactions merchants may see that could be tied to fraud groups and the risks tied to both closed loop and open loop prepaid cards.

To read the first story, covering “phantom shipments,” please click here. To read the second story on “prepaid gift card smurfing,” please click here.

Merchants can be involved with phantom shipments to move value across borders and cash can be anonymously loaded on prepaid gift cards through smurfing operations and used at US merchants to make sales revenue appear legitimate.

The rules and actions of the payment sector have direct implications on bank anti-money laundering programs.

How? Because while banks are technically not liable for the illicit actions of their customers’ customers – the customers of a merchant or payment processor – the bank is on the hook for properly inquiring about the risk of that customer base and compliance procedures, if any, of the merchants.

May 16, 2017

Data integrity can no longer be neglected in anti-money laundering (AML) programs

May 16, 2017/ Keith Furst

The New York State Department of Financial Services (NYDFS) risk based banking rule, went into effect on January 1, 2017 and will have a significant impact on the validation of financial institutions’ transaction monitoring and sanctions filtering systems. The final rule requires regulated institutions to annually certify that they have taken the necessary steps to ensure compliance.

Data integrity is particularly interesting because it arguably hasn’t been given the same emphasis as other components of an effective anti-money laundering (AML) program, such as a risk assessment.

There has always been an interesting dynamic between the way compliance and technology departments interact with one another. This new rule will force institutions to trace the end-to-end flow of data into their compliance monitoring systems which could be a painful exercise. This exercise will demand the interaction between groups which may have stayed isolated in the past and it will require some parts of the organization to ask tough and uncomfortable questions to others. Clearly, gaps will be found and remediation projects will have to be launched to address those items.

May 10, 2017

Micro-jurisdictional risk: One of AML’s missing links

May 10, 2017/ Keith Furst

High level jurisdiction risk assessments alone are often too broad in scope to include in anti-money laundering policies; Micro-jurisdictional risk analysis could help allay model bias.

Some aspects of AML policies and procedures are in need of an overhaul, to capture variables important to making accurate analysis
Low risk jurisdictions have high-risk neighbourhoods and, conversely, not all customers and transactions from high-risk jurisdictions warrant heightened scrutiny
Financial institutions should go beyond existing AML guidelines and apply a more granular risk-based approach to geography to stay ahead of upcoming best practices

April 18, 2017

AML Data Quality: The Challenge of Fitting a Square Peg into a Round Hole

April 18, 2017/ Keith Furst

As mentioned in my previous articles, traditional rule-based transaction monitoring systems (TMS) have architectural limitations which make them prone to false positives and false negatives:

Naive rules create a plague of false positives that are expensive for investigators to sift through
Sophisticated money launderers know how to circumvent rule-based systems leading to false negatives and potential fines from regulators

This article focuses on the third drawback of existing TMS solutions: how their inflexible data models lead to poor data quality, resulting in additional false positives and false negatives.

I think many of us working in the anti-money laundering (AML) technology space have experienced the frustration of spending many hours retrofitting new data types to squeeze into the rigid data model of a TMS. Unfortunately, the more effort we spend retrofitting data, the more likely we introduce data quality issues. Further, when we don’t complete it in a timely fashion, we’re exposed to risk of large fines from regulators. That said, there’s hope on the horizon from machine learning solutions that are more forgiving of disparate data formats.

April 12, 2017

BankThink De-risking shows failure of AML teams to innovate

April 12, 2017/ Keith Furst

Anti-money-laundering rules have always been a challenge in the financial services arena, with regulatory bodies demanding high standards of compliance and levying fines for noncompliance. Financial institutions have long struggled to meet those demands.

But the high regulatory burden of satisfying these rules is not an excuse for the current de-risking phenomenon, in which financial institutions are pulling out of regions and client relationships seen as carry money laundering risk, rather than face the costs and regulatory risk of maintaining those relationships. The conundrum associated with satisfying AML regulations has as much to do with a failure of imagination in efforts to follow the rules as it does with how onerous the regulatory requirements are.

February 18, 2016

The challenges and benefits of mapping SWIFT messages to your Transaction Monitoring System (TMS)

February 18, 2016/ Keith Furst

The Regulatory landscape and SWIFT messages

Cross-border payments have been a central theme in recent regulatory actions where regulators levied record breaking fines against financial institutions that failed to comply with Bank Secrecy Act / anti-money laundering (BSA / AML) regulations. The Society for Worldwide Interbank Financial Telecommunications (SWIFT) is, in some sense, at the heart of these violations because it is one of the major facilitators of global money transfers which have come under increased scrutiny.

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