5 minute read 26 Mar 2020
Business-persons meeting over interactive touch table

Why collaboration is the best way to combat financial crime

By Dai Bedford

EY Global Banking & Capital Markets Consulting Leader

Transformation leader. Talent developer. Family man. Welsh rugby fan.

5 minute read 26 Mar 2020

The costs and complexity of tackling financial crime are becoming a major distraction for the C-suite. A managed services approach can be more effective while freeing leaders to focus on innovation.

What more could your business achieve if the burden of combatting financial crime was lifted? Each of the world’s largest banks spends approximately US$1b annually on financial crime operations, with most of this allocated to compliance, rather than activity targeting criminal behavior. This huge spend responds to a growing regulatory onus on banks to know exactly who their customers are and where their money is coming from – since 2008, regulators have fined the world’s biggest banks more than US$320b for breaches.

But this focus on financial crime is costing banks more than budgetary dollars. It distracts leaders at a time when customers demand better, technology-led experiences, while growing sector convergence ushers in new non-traditional competitors that threaten banks’ market share.

If financial institutions are to compete with the world’s tech giants, can they afford to continue to focus their technology initiatives, best talent and investment on compliance? More banks realize it’s time for a new approach.

Lift the burden of compliance to focus on innovation and growth

Building the capabilities, systems and tools to go beyond compliance and proactively target criminal activity is increasingly difficult and expensive for most financial institutions as technology advances, regulation increases and the talent to manage it all becomes harder to find. 

Instead, more banks are seeking a more collaborative approach through managed services, which can be more effective and give leaders the confidence and freedom to focus on adding value through innovation.

But with the stakes so high, the choice of managed services partner is a critical one that can mean the difference between success and the unmentionable. Banks need a provider they can trust to lift the burden of compliance through a proven mix of:

  • Technology that reduces costs and enhances performance. Managed services can give banks access to the new technologies that are transforming core financial crime processes including:
    • Anti-money laundering (AML): Traditional AML transaction monitoring controls have been costly and inefficient, typically generating high levels of false positive alerts and a significant workload for staff. Deploying artificial intelligence (AI) can immediately cut the costs of AML, while improving outcomes, by using machine learning to monitor transactions and applying natural language processing and text mining techniques to customer due diligence and screening. 
    • Know-your-customer (KYC): Early KYC processes involved the costly creation of siloed, data repositories which were typically managed and owned by vendors. This approach yielded limited value. Now, data-sharing technologies are allowing the development of KYC platforms, such as EY’s Digital Passport, that allow customer-permissioned, secure exchange of digital identity and customer information among collaborating stakeholders.

Technologies, such as these, and EY’s Cognitive Investigator, when deployed in tandem with specialist expertise can deliver efficiency savings of up to 40%, and increase the effectiveness of the financial crime function, at a time when banks are under pressure to move beyond red-flagging suspicious activity to target and prevent crime. Critically, when banks leverage the technology of a managed services provider, they free up their own resources to focus on creating the strategic opportunities that will add value and grow revenue. 

  • Talent with deep industry and technology knowledge. The most sophisticated technology works best in combination with human insights. But even the world’s leading banks are struggling to win the war for top specialist talent in a tight market. The difficulty around finding and retaining people with the rare combination of technology capabilities and deep industry knowledge is another reason for banks to consider a managed services approach in fighting financial crime. The right providers provide access to specialist talent and strategic counsel when and where it’s needed. 
  • Regulatory expertise and trusted relationships with authorities. The potential of innovative technology to tackle financial crime is only unlocked when deployed in an approved and regulatory credible way. For example, machine learning offers huge potential to transform screening, but unless an algorithm is repeatable and explainable, it will not gain regulatory approval. Working with a managed services provider that has trusted relationships with the world’s regulators helps technology be deployed in a manner that can meet regulatory approval.

Could a safe pair of hands help your business fly?

Financial crime is not a new issue, but the increasing sophistication of criminals, the rise of new technologies and growing regulatory scrutiny mean that disrupting this crime is becoming more difficult and costly. Banks must reassess their current approach and check that it is fit for purpose.

Is building the capabilities and technology in-house the best strategy, when the business faces other challenges in a rapidly changing market? Managed services can be a smarter option, providing greater cost efficiencies, increased effectiveness, and stronger regulatory credibility, while freeing up the business to focus on growth and competitive priorities.

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Financial institutions that adopt a managed services approach to financial crime can significantly improve the efficiency and effectiveness of the function, and free up resources to focus on strategic opportunities.

About this article

By Dai Bedford

EY Global Banking & Capital Markets Consulting Leader

Transformation leader. Talent developer. Family man. Welsh rugby fan.