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Anti-Money Laundering: What's in Store for 2012

By Marlee Rosen

As financial institutions prepare for the demands of the new-year, industry analysts are predicting that
Bank Secrecy Act (BSA) and anti–money laundering (AML) compliance management software will be a key focus for them in 2012. After much criticism from federal examiners in 2010-11, the anticipated trend for financial institutions will be in addressing compliance using IT, eliminating silos of automated systems and creating more effective BSA and AML compliance programs.  Gartner agrees that this as an upcoming trend mostly due to the increased regulatory pressures, and the limitations and rising cost of high-volume transaction scanning as the driving factor for financial services firms to invest in AML systems.

While many institutions may find it difficult to build a business case for integrating AML with anti-fraud, next generation AML software, analytics, and case management today can deliver better results than legacy anti-fraud systems.  This supports Celent’s 2013 prediction that spending on AML compliance, including operations and technology is expected to reach US$5.8 billion globally.

Intesa Sanpaolo Addresses AML Compliance

Financial institutions have acknowledged their need to respond to complex and continually changing organizational risk exposures.  For instance Intesa Sanpaola, one of the top banking groups in Europe that manages 18.5 billion euro in 13 countries, recently undertook an AML initiative to ensure regulatory compliance and risk management using EastNets en.SafeWatch Profiling anti-money laundering solution.  Responsible for ensuring international 5,500 branches are compliant the 3rd EU directive, in compliance with group-wide AML policies, and mitigating correspondent banking AML risk, EastNet’s software suite was deployed using a pragmatic phased approach.  The objective was to meet their challenging goal of ensuring regulatory compliance across multiple geographies – a tall order.  Stefano Cabianca, AML International Officer at Intesa Sanpaolo continued, “EastNets strengthened and expanded our AML coverage and protection. We have been particularly impressed with the solution’s Zone Concept that enables strict segregation of information pertaining to each branch for automated detection routing, whether on individual servers, or in our case, one combined server that will lower our maintenance and operational costs.” 

Banks are under increased regulatory pressure and face even larger penalties for non-compliance.  In 2011, there were fines in excess of a half-a-billion USD in the states.  Firms must fundamentally shift how they approach watch list filtering because of growing OFAC (Office of Foreign Assets Control) and PEP (politically exposed persons) lists.  With non-compliance fines growing and firms now required to do more than just sanction screening through OFAC List matching, investment in profiling and watch list filtering are rapidly being adopted.  The challenges organizations face matching multi-cultural client names are daunting.  With Intesa Sanpaola’s IT investment, and they have been able to leverage offline analysis of customer behavior to identify suspicious activity which could mask money laundering, terrorist financing, corruption, usage of dual good, financing of illegal weapons or drug dealing.

Politically Exposed Persons or PEPs 

A key element in AML is the delivery of up-to-date information on which individuals or companies warrant further tracking such as Politically Exposed Persons.  They represent a particular risk for fraud, either because of an existing position of power and influence or because of prior activities. While often this data is provided freely by regulatory bodies, more than 70% of banking institutions subscribe to a single source that combines multiple versions of such lists with other research information and perform the extra due diligence on identified PEPs.  For instance in Intesa Sanpaolo’s case, they integrated EastNets sanctions and PEP filtering solution and utilized its graphical user interface for further analyzing detections and leveraged fully configurable and self-steering workflows.  Most financial organizations want easy to use and quick to deploy solutions.  For Intesa, the deployment was completed within three months from initiation to production including the integration to several back office systems.  Analysts forecast that the straight forward, easy to deploy AML applications will have a greater adoption and acceptance level then more complex systems equipped.

The Analyst’s Perspective: AML 

Celent reports that the AML systems providers that will capture the most market share in 2012 will offer browser-based interfaces,  visualization tools to depict relationships, robust analytic techniques, enhanced case management and workflow systems, compliance dashboards, account opening and watch-list filtering modules, integration with payment networks such as SWIFT and the ability to offer outsourcing of some AML services.

Packaged AML software reached about $458 million in 2011.  Celent predicts that the compliance burden associated with AML will expand at a rate of 7.8% annually. Global spending on AML software will expand at a rate of 10.4% annually.  The main drivers for AML compliance is regulatory requirements and reputational risk in terms of protecting the financial institutions brand. 

Gartner views anti-money-laundering mainly as a regulatory compliance demand and finds that often financial firms overlook the business value and cost savings from integrating AML data and processes with enterprise risk, performance and customer relationship management.

The Tower Group adds that what is driving the growth is how financial institutions have a need to update technology despite tight budgets and deferred investment.  Both Gartner, the Tower Group and Celent agree that AML vendors' delivery innovations, pricing and expanded domain expertise are also keys factors impacting growth in the industry.  The AML software providers have done a good job in being able to service the Smaller institutions that may not need, or even be able to effectively use a very advanced solution as well as the financial giants that typically require sophisticated data mining and analytics just to keep track of their substantial volumes of accounts and transactions.

Gartner’s word to the wise is to first get management and board buy-in in order to help overcome political divisions and resistance from siloed business lines and units. With this in mind, Gartner preaches the adoption of a phased roadmap that could begin with a centralized case management system to unite disparate legacy AML and antifraud systems with the end goal being enterprise wide compliance. 


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