Financial Crime Prevention & AML Software for Financial Institutions: Ready-made & Custom

The pandemic has accelerated the global shift toward a digital and cashless society, but it has also created additional opportunities for fraud and financial crime. The latter has always been the major cause of concern for financial institutions, and in this modern complex environment, they are not keeping pace with financial crime threats.

Financial institutions not only suffer cash losses due to fraud and data leakage but are also penalized with heavy fines for non-compliance with regulatory requirements or for the absence or inadequacy of their AML / FCP software.

In its latest report on global financial institution fines for the first six months of 2021, Fenergo stated that fines for non-compliance with AML, KYC, data privacy, and MiFID regulations totaled $937.7 million. In contrast, financial institutions were penalized $10.6 billion for the same violations in 2020. This is definitely positive momentum, but the fight against financial crime is far from being won.

Combating money laundering and financial crime remains the key challenge for the financial services industry as attackers’ methods become more sophisticated and complex. To reduce the risk of losing money to fraud, avoid non-compliance fines, and protect their reputation, financial institutions should deploy anti-money laundering and financial crime prevention (AML & FCP) software. Let’s find out where financial institutions should focus their attention to fight fraud more effectively, which AML/FCP solutions are available on the market, and what are the key advantages of custom financial crime prevention software.

How to Detect and Prevent Financial Crime and Money Laundering

Given that fighting financial crime and money laundering is a top priority for any financial institution, they need to seriously consider greater investment in technology as a primary tool to stay ahead of the fraudsters. We have outlined the main directions that banks and non-bank institutions providing financial services should focus on if they want to effectively detect and prevent fraud.

Sanctions & PEP Screening

There are two types of checks that constitute the screening program:

• Sanctions screening ensures that individuals on the global law enforcement and sanctions list are strictly prohibited to make financial transactions.
• PEP screening seeks to identify and conduct CDD (customer due diligence) on any PEPs (politically exposed person) or other high-risk customers.

Screening data comes from OFAC and FATF watchlists, World-Check database, EU, UN, Dow Jones Sanction Control and Ownership Research, Accuity, internal blacklists & greylists, etc. All these sources are constantly updated with new names.

AML Transaction Monitoring

It is the process of detecting suspicious behavior indicative of money laundering by monitoring customer transactions and matching reference patterns on a daily and real-time basis. AML transaction monitoring enables organizations to prevent financial crime or spot it very early on and can provide financial institutions with a comprehensive analysis of customer profile, risk level, and likely future activity. AML transaction monitoring solutions can generate alerts on suspicious activity and produce reports with information on cash deposits and withdrawals, wire transfers, and ACH (Automated Clearing House) activity.

Risk-Based Scoring KYC

When it comes to AML for banks, standard KYC solutions are not sufficient enough to play it safe. Instead, banks should approach KYC from a money laundering risk and compliance perspective. It’s a far more thorough strategy to deploy advanced solutions that are specifically designed to meet all the requirements of the banking sector. Such KYC software normally uses a detailed matrix containing the status, range, and counts to calculate the risk based on the customer’s attributes.

When the above measures are applied simultaneously, they prove to be an effective anti-money laundering and financial crime prevention program.

Custom Vs. Off-the-Shelf Solutions

The decision of whether to go with ready-made financial crime prevention software or develop a custom one should be based on the needs of the specific business. If you’re still undecided, check out the list of pros and cons we’ve prepared for each option. You can also contact our specialist for an in-depth consultation that will help you better understand which option is suitable for your specific case and get answers to any questions you may have about financial crime prevention and AML software for banks.

Top AML/FCP Solutions

Let’s take a closer look at the world’s leading providers of anti-money laundering and financial crime prevention software for banks and non-banking organizations providing financial services.

NICE Actimize

The vendor offers a cloud-based analytics solution called NICE Actimize Suspicious Activity Monitoring (SAM). It provides real-time, customer-centric fraud prevention and supports a holistic, enterprise-wide fraud management program helping businesses of all sizes detect, prevent, and investigate money laundering and fraud and avoid compliance violations.

NICE Actimize does not have a free version and does not offer a free trial. Contact the vendor for pricing details.

FICO

FICO’s risk-based AML solution enables companies across multiple industries to protect their businesses from financial crime while meeting regulatory standards, including KYC, sanctions screening, and transaction monitoring. FICO monitors suspicious transactions and non-transactional events, including rules, basic analytical profiling, and provides advanced analytics with supervised and unsupervised machine learning.

The vendor offers multiple products that can be combined depending on your specific needs, so prices are customizable.

BAE Systems

BAE Systems is an AML RPA (Robotic Process Automation) solution provider and an advanced analytics vendor that offers multiple tools and solutions for anti-money laundering, customer due diligence, WLM (Watch List Management) transaction filtering, compliance, and more. Their AML Transaction Monitoring Tool is an end-to-end solution that manages all aspects of money laundering detection, investigation, and reporting, combining human intelligence with machine learning and advanced analytics to increase efficiency.

Pricing is available upon request. Contact the vendor for details.

At Itexus, we primarily work on fintech projects, leveraging our in-depth knowledge in the field. If you want to integrate your solution with ready-made AML software or an FCP solution, our experts will analyze your requirements and offer you the best solution that perfectly fits your specific case. Contact us to discuss details and find out how we can help you ensure compliance.

Examples of Custom AML/FCP Solutions and Their Functionality

Take a look at some examples of AML/FCP software that our engineers can develop for you. Depending on your needs, we can strengthen any solution with additional features to ensure the greatest possible added value.

A solution for watchlist screening

Such a solution provides screening your customers and all types of transactions (as well as identifying PEP’s) against your chosen watch lists (including sanctions). We can have the solution check the watchlists from different sources (public, commercial or private), applying geographic and business rules. Such a solution can also include an extensive knowledge base to help identify hidden sanctioned banks and countries

Suspicious activity prevention solution

Such online behavioral profile transaction monitoring solution builds user and customer profiles over time (in accordance with risk-based approach configured by financial institutions) to detect and stop suspicious transactions with unusual amounts, abnormal frequency, suspicious location and transactions to unknown business partners (looking for suspicious behavior at a customer, account, transaction, peer group, and segment levels).

A risk-based scoring KYC solution

This solution assesses risks and categorizes all your customers according to chosen risk matrix and scoring preferences. The rated and categorized customers may subsequently be given more advanced due diligence in their profile transaction monitoring based on their risk profile identified.

Nice-to-Have Features to Strengthen a Fraud Prevention Solution

• Support of ad hoc investigation processes of all data stored in the underlying database, including live data, audit trails, and system parameters.
• Support of financial institution’s control of users’ actions, data rights, and the alert evaluation workflows.
• Support of important regional regulatory compliance policies — e.g., PSD2 (Payments Services Directive 2) policy, which determines whether a particular transaction initiation requires strong customer authentication (SCA) or not.
• Regulatory reporting functionality — reports generation and submission in a format required by the relevant Financial Intelligent Unit (FIU). E.g., banks are required to submit Suspicious Activity Report (SAR) and Currency Transaction Report (CTR) to FIU according to the country or jurisdiction.

Points To Consider When Developing a Custom AML/FCP Solution

When it comes to the functionality of custom AML software, the client has the final say, but there are some common points that need to be considered regardless of the type of solution you are developing. If you want your solution to add value, not costs, make sure it is:

• dynamic to respond quickly to industry requirements;
• maintainable when it comes to installations to support, bug fixing, or onboarding new developers;
• high-quality to keep maintenance costs low;
• flexible to allow for extended functionality or redesign for performance improvements and to support changes to the underlying technology;
• testable and allows quality control checks at all stages;
• scalable to allow horizontal scalability, linear scalability, and high volumes.

Summary

As attackers increase the sophistication of their campaigns, and the number and speed of electronic transactions are growing steadily, the fight against financial crime requires more complex and flexible detection methods. The right AML/FCP software delivers industry-leading levels of detection and false positives by providing advanced algorithms, intelligent contextual whitelists, and efficient scanning helping to reduce overhead and cut costs by eliminating the need for manual fraud management without sacrificing your detection rates.

At Itexus, we leverage our enhanced knowledge of financial crime prevention and apply international best AML practices to ensure our clients comply with AML and CFT regulations. Whether you need help with the integration of existing AML/FCP software or want to develop a custom solution, we’ve got you covered. Let’s discuss your idea and find out how our experts can help you protect your business against financial crime along with satisfying regulatory standards.

Originally published on Itexus Blog on November 11, 2021.