STRATEGIES FOR REDUCING AML CASE PROCESSING TIMES

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2 INTRODUCTION As organizations deal with rising regulatory expectations and increasing scrutiny, they confront the prospect of compliance cost increases that exceed their growth in top-line revenue. Many of the increases relate to the direct costs of increased investigator staffing and limited innovation in investigation processes. The pressures on AML compliance investigators to reduce the time required to close a case investigation and streamline their AML review processes creates challenges for hiring, training and retaining qualified investigators. Organizations are finding a solution. A new class of technology solutions has emerged offering significant time-savings that can reduce AML investigators case resolution times by as much as 80%. By focusing on time-consuming activities that create bottlenecks in the case review process, these solutions are reducing complexity and manual effort, integrating evidence sources isolated in disparate compliance applications, and saving millions of dollars in operating expense. This ebook looks at the challenges organizations face today related to regulatory trends and expectations, and their effect on the AML review process. It examines the challenges inherent to AML review processes and the opportunities to improve AML investigator productivity with clear steps that can reduce investigation times. A recent case study illustrates the bottom-line benefits. A recent ACAMS study found that 60% of Chief Compliance/Risk Officers (CCO/CRO) cite new and changing regulations as their most significant prime compliance risk. 1

3 REGULATORY TRENDS & THEIR EFFECT ON AML INVESTIGATIONS With regulatory requirements increasing constantly, organizations find themselves under increasing supervisory scrutiny by regulators. But the challenges organizations face are about more than ensuring regulations are followed. Today, regulatory institutions focus on ensuring that firms understand a comprehensive assessment of their risk and that their processes are designed to use that assessment as a component of their compliance strategy. The overarching theme that we are seeing is not just about increased regulatory scrutiny, but an increased need to be able to bring together sources of information to try to optimize operational processes. Up until a couple of years ago, this wasn t something regulators, or organizations were focused on. - Michael Flynn, Partner / Principal in the Financial Services Advisory, PwC This assessment comprises: Monitoring and analyzing transactional information in the organization, and Correlating that information with unstructured or semi-structured evidence sources to their understand the risks associated with a suspicious transaction. What does this mean to you? There is a huge burden on organizations to aggregate, sift and interpret what could be a large number of data sources and link them together into a risk-adjusted, 360-degree view of each transaction. Business processes, such as AML investigation, that rely upon the human correlation of structured and unstructured evidence are a prime cause for compliance costs that rise with organic growth. As a result, there is an imperative to automate or speed up the time it takes to incorporate unstructured information into the business process. This imperative sets a primary objective for optimizing the investigation process. Four examples illustrate how these challenges emerge and are being resolved using a common set of techniques and technologies: 2

4 Risk Management Organizations that deal with third-party contracts typically rely on human oversight to assign risk to them. This oversight can leverage the ability to extract and analyze entities and concepts, automatically, from a contract and correlate those elements across contracts. Example: Contracts with Third Parties Challenges: Unstructured Data, Variety of forms & terms Solution: Rapid search capability, Risk-based scoring, Relevancy, grouping, and classification Consumer Complaints: Organizations are scrambling to do a better job at classifying, consuming and understanding complaints. They hope to reduce the amount of time spent collecting information and spend more time understanding and mitigating the causes of dissatisfaction. Example: Customer Complaints Challenges: Volume and variety of data, Natural/Spoken Language Solution: Classification, Similarity, Data integration Financial Crimes Investigators spend a high proportion of their time tracking down and recording evidence related to a suspicious transaction. Increasingly, they need to correlate evidence from an growing number of distinct and disparate sources. Example: Anti-Money Laundering and Know Your Customer Challenges: Volume of data, Lengthy Investigation Process, High regulatory requirements Solution: Data integration, Risk-based scoring, Consistent approach The ability to use a different workflow, but the same tools, techniques and procedures is something that we think can give lift to a lot of organizations. Regulatory and Policy Monitoring As new regulations emerge and evolve, organizations are challenged to add new evidence sources or applications, without exacerbating the time cost of evidence gathering. Organizations must evolve their processes, re-train staff, and maintain consistency across every regulatory jurisdiction. Each of these examples shares a need to correlate increasing amounts of unstructured information with structured transaction-level information. In each, information needs to be gathered, analyzed, and reviewed by human analysts. Let s take a look at one particular process, AML case review and see how focusing technology can make a huge difference in the speed and accuracy of investigations. 3

5 THE LIFECYCLE OF AN AML INVESTIGATION Assemble a case based on all transactions from the month and generate an alert. Then, all alerts with the same focal entity are aggregated to create a case. The typical first-level AML investigation begins when a collection of transactions among a set of entities reveals unusual or suspicious behaviour. In most organizations, a case is created by software and the transaction information triggering the case is gathered into an electronic file, or container. Once the case is created, information is provided to a human or automated assigner, which refers the case to a human analyst. Typically, investigators set about gathering evidence from distinct compliance applications and associated evidence repositories or authority files. Once all the evidence is collected and brought to a manageable view, analysts apply their investigative framework to determine whether a Suspicious Activity Report and further investigation are warranted. CASING YES NO TP & ALERT STACK Transaction monitoring and Case Management tool ASSIGNER Assigns a Case to Investigtor based on Complexity Score INVESTIGATOR Investigator goes through the research process to come to a Yes/No Decision, then manually builds the case Narrative. NARRATIVE Narrative is the audience that is required to close a case. After deciding, the investigator has the affirmative responsibility to generate a case narrative for any case that is reported and escalated. Reduced to its most fundamental, the economic challenge is measured in minutes the length of time required to complete this initial investigation. Averaged over all cases and all investigators, the time taken to dispose of an alerted case is the single most important determinant of economic cost of false positives (transactions that generate spurious alerts, but that aren t truly instances of criminal behaviour). 4

6 Poll: In your AML operations, what s the average time it takes to clear a first-level, generated AML alert? 5 Minutes or Less 6-15 Minutes 23.9% 13.5% 14.5% 23.2% Longer than 1 Hour Minutes This number is the best proxy for estimating the value associated with pursuing an effort to optimize AML investigation. As a quick rule-of-thumb, organizations dealing with resolution times of a half hour or longer are likely to extract substantial value. 138 Total Votes Minutes 25.4% 5

7 4 STEPS TO OPTIMIZING AML INVESTIGATION TIMING There are four critical steps that, if appropriately addressed, can increase the productivity of AML investigators. Identify, Correlate and Gather case evidence from every relevant source - internal and external. Better still, identify and connect evidence regardless of your existing technology components. Score and Assess Cases to ensure each gets the best level of investigative attention. Apply a Consistent Investigative Framework by automatically creating a comprehensive summary a single-screen showing all evidence relevant to the transaction(s). Reinforce a Culture of Compliance by automatically creating required narratives - reporting all probative evidence in an audit-worthy, discoverable format. 6

8 CHARACTERIZING A BALANCED SOLUTION Meeting regulatory expectations while empowering AML investigators to be more effective and efficient in case review, three common requirements stand out. Support New Sources of Information An optimized solution will add new sources of information into the process easily. It should be compatible with your existing AML technology stack. It must be flexible enough to connect new sources of evidence recommended by regulators or discovered as part of the investigative process. Increasingly, organizations are mining unstructured information for evidence that supports investigations. New and emerging data sources - social networks, chat, as well as traditional online communication are fast becoming crucial elements for compliance and enforcement alike. Using modern text analytic methods, correlating entities and activities helps analysts connect the behavioural dots. According to Forrester, AML investigators typically pull together over 125 facts from 8 to 10 sources for a single case. The manual nature of this process imposes substantial costs - millions in operating expenses for large, global institutions. For many, it can include substantial overtime to handle backlogs or unanticipated growth in transaction volumes. Resolve Application and Data Management Complexity AML is a big data problem. It presents common, Big Data challenges. Organizations wrestle with big data storage. Decentralized data storage solutions and platforms such as Hadoop, enterprise data warehouses (EDW), data marts and data warehouses, have arisen to support those storage requirements. As well, most AML applications and evidence sources are designed as standalone components; they are rarely designed to work immediately with each other. This persistent isolation of application and evidence sources means investigators spend a significant amount of time searching and collecting material from sources, serially just to accumulate the evidence. 7

9 Question: Are you currently using unstructured search capabilities to speed up your investigations process? In the effort to reduce average investigation time, Investigating Solutions 37% of organizations are using unstructured search capabilities to help speed the process. On the other hand, 44% aren t using these kinds of solutions, and 19% are only investigating NO 18.5% YES potential solutions. More effective integration is the key 44.5% to eliminating the isolation and complexity of evidence preparation. With a common semantic 119 Total Votes 37% compliance catalogue, finding evidence using search-based methods can reduce preparation times significantly. 8

10 Reduce Investigation Time / Increase Investigation Accuracy To re-iterate, the most direct measures of the efficiency of AML investigation are the time required by investigators to gather case evidence and the time required to develop case narratives. For most organizations, these are still manual tasks. If an organization reduces the time spent manually collecting and curating evidence, eliminating the complexity caused by isolated solutions savings will follow. If an organization eliminates the time spent preparing audit-ready narratives, eliminating variability and inconsistency across individual investigators real savings and swifter regulator approval will follow. If an organization presents a single-screen of evidence embedded in a common investigation framework, creating a consistent evidence review process increased investigative accuracy and regulator approval will follow. By focusing on case summaries (to guide the evidence evaluation process) and on closed case narratives (to document the investigator s logic), a data integration solution offers one possible answer for AML operations executives. Reducing the incremental collection and documentation effort is essential if organizations want to grow transaction volumes without incurring commensurate costs. Over time, these costs will Regulators expect organizations to increase their AML compliance resources commensurate with transaction growth. This expectation illustrates both the challenge and the opportunity for AML optimization. - Lee Phillips, Senior Director of Product Marketing, Attivio become essentially fixed expenses, unless steps are taken to aggressively manage their causes. 9

11 Question: In your AML operations, how did the level of staffing change in the past year? Decreased 5.8% Remained the Same 40% Increased 120 Total Votes 54.2% 10

12 LESSONS LEARNED AT A GLOBAL TIER 1 BANK Their Problems: Settlement terms mandated three comprehensive improvements. First, that the bank either increase staff or increase the productivity of existing staff substantially - to eliminate an existing case backlog and prevent future backlogs. Second, the bank was charged with establishing a consistent compliance culture across each of its global units. In addition, the bank was tasked with implementing greater consistency in investigation procedures within each jurisdiction. Finally, the bank was required to increase the quality of documentation associated with its investigations and suspicious activity reports. Regulators also requested greater consistency in reporting across investigators and jurisdictions; specifically citing the forensic value narratives could play in compliance. Apart from settlement terms, the bank felt enormous financial pressure to reduce the economic costs of the falsepositive alerts generated by its transaction monitoring technology. The Solution: The bank implemented an integrative solution, focusing on automating initial evidence gathering and final case narration stages of AML investigation. By design, this solution needed to: Augment (not replace) existing case management and transaction alerting systems Analyze structured and unstructured information, creating a semantic compliance catalogue to cover all evidence sources - supporting a single-screen summary of all case evidence Integrate other AML-relevant evidence sources such as KYC, EDD/CDD, sanction/watch-lists, news, etc. The new solution also enabled better investigator utilization, supporting custom case-scoring such as case completeness, similarity, and complexity to facilitate case assignment. 11

13 The Results: The benchmarked results are impressive. Case narratives are generated automatically for 20,000 cases with 140 facts/case Average case resolution time has decreased from approximately one hour down to less than 15 minutes Analyst productivity and accuracy have increased; enabling the bank to clear and eliminate backlogs, cut the cost of false positives, and restore confidence and greater certainty to compliance The solution was put into operation in four months (one of which was December) Key Benefits Achieved Transformed productivity of investigators by reducing case resolution times by 75% Implemented consistent evidence gathering, review processes, and case narratives presenting all relevant evidence from more than a dozen applications into a single screen Reduced risk to brand value by closing 100% of alerted transactions and meeting or exceeding the expectations of regulators and court monitors. 12

14 IT CAN HAPPEN Every institution subject to BSA compliance needs to have efficient, effective, and consistent AML processes. Providing investigators with integrative solutions can create business value by increasing certainty, transforming productivity, ensuring global impact, and crushing traditional deadlines. Integrative solutions ensure that evidence is complete and readily available. Compliance is a Big Data activity, and it requires an agile, enterprise-scalable response one that can support growing organizations as they seek to implement a consistent culture of compliance in every jurisdiction. Will your AML compliance operation handle the transaction growth and additional complexity your organization faces? Are your AML investigators bogged down in unnecessary manual evidence preparation that technology can perform faster and with greater consistency? Are you confident your compliance team can systematically reduce AML investigation times? Do you have a plan that can cut the cost of false positives by 50% or more? Or are you waiting for the other shoe to drop? Do you have a plan that can cut the cost of false positives by 50% or more? Or are you waiting for the other shoe to drop? 13