Thomson Reuters: Anti-Money Laundering Survey Insights

Thomson Reuters: Anti-Money Laundering Survey Insights

2 Introduction With rising regulatory pressure, increasing cost of compliance and disruptive technologies entering Know Your Customer (KYC) and Anti-Money Laundering (AML) processes, industry professionals need to apply more stringent focus and prioritization than ever. Thomson Reuters has conducted this survey to explore the challenges faced by companies as they look to manage KYC & AML with emphasis on understanding software and data needs of practitioners and their views on the benefits novel technologies can provide. Survey Details This summary is based on research commissioned by Thomson Reuters and conducted by an independent agency in the second half of 2017. A total of 931 professionals completed the survey, all of whom were responsible for effective policy development, investigations or operations in the area of KYC and AML. The survey reflects the views of professionals in the financial industry and other sectors that have recently been met with increased attention by regulators, such as e-commerce, telecommunications, etc. The survey results include responses from privately owned firms and publicly listed companies across the Americas, Europe, Africa and the Middle East and Asia-Pacific. Responses were spread across different company sizes.

3 Terminology Entity Screening: Process of screening client names and associated details against lists provided by relevant competent authorities, both at initial onboarding and at other points during the client relationship. Payment Screening: Process of screening or filtering of relevant payment instructions prior to their execution in order to prevent making funds available in breach of sanctions, embargoes or other measures. Transaction Monitoring: Automated or manual process of monitoring transactions and transaction flows after their execution in order to identify unusual transactions. Executive summary With the risk and impact of money laundering on the rise, use of key risk management products and staff headcount is expected to increase in the next two years. This usage increase stems from frequent product utilization, growing business complexity and intensifying regulatory demands. There is no expectation in the market that budgets used for the deployment of risk management products will increase. Drilling down further into specific data and software requirements for Entity Screening, the need for a reduction of false positive results and better resolution of false positives is high across all industries. Data needs vary slightly between financial and nonfinancial industries, with the former group attributing high importance to essential data sets such as sanction & PEP lists, reports on individuals and entities mentioned in the reputable media as being associated with a predicate offense (commonly known as adverse media), and data on ultimate beneficial ownerships. The latter group prioritizes financial and cybersecurity data. Looking ahead, there are differing views in the market on the role of cloud technology for the storage of client records and transactions, with skeptic voices highlighting concerns around data security and privacy controls.

4 Key survey highlights Market outlook How do you foresee your usage of key risk management products to evolve in the next two years? Increase > 50% 9 12 12 Increase 21-50% 26 26 28 Increase 0-20% 33 35 37 Stay the same 21 22 24 Decrease 3 6 6 0 10 20 30 40% Payment Screening Solution Transaction Monitoring Solution Entity Screening Solution Usage of key risk management products for AML is expected to increase in the next two years. More than two-thirds of respondents expect an increase in the use of these solutions. The majority of respondents foresee a moderate increase of lower than 20%.

5 In your view, what is the primary reason for this usage increase? Higher Usage Frequency Increasing Business Complexity Increasing Regulatory Pressure Budget Increase Observations Top reason for usage increase for Payment Screening and Transaction Monitoring Prevalent reason for usage increase for e-commerce respondents Ranked second for usage increase for Payment Screening and Transaction Monitoring Top reason for usage increase for Entity Screening Prevalent reason for usage increase for sell-side banking respondents Prevalent reason for usage increase for C-level respondents Least important reason for usage increase across all products Three key trends underline this expected usage increase. Higher usage frequency is driving the need for AML products that are increasingly providing and requiring real-time reaction and risk decision making, namely Payment Screening and Transaction Monitoring. Respondents operating in e-commerce sectors particularly expect this trend to be dominant in the next two years. The second most important driver for these two workflows is an expected increase in business complexity as expressed by survey respondents. Regulatory pressure ranks first for Entity Screening processes and is a particular concern for respondents working in sell-side organizations and C-level executives. An increase in available budgets consistently ranks last by a strong margin, making it close to irrelevant for heightened product usage for AML prevention and risk management.

6 How do you foresee the number of employees in your department to change in the next two years? Increase > 10% 41 Slight increase 0-10% 35 Don t know 2 No change 17 Decrease 5 0 10 20 30 40 Share of respondents 50% In addition to expanded risk management product usage, respondents also expect an increase in the number of people that work in AML and KYC functions in the next two years. The majority of respondents foresee headcount for these professionals to increase by more than 10%. This picture is fairly consistent for all surveyed respondents globally; however, C-level executives appear to have an even stronger view on this projected increase, as 47% of respondents in executive roles expect an increase of 10% or more.

7 Top data and software needs for Entity Screening Top five data needs for the purpose of Entity Screening: Top five product feature needs for the purpose of Entity Screening: Sanction lists Ability to effectively resolve false positive results Data on Ultimate Beneficial Owners (UBOs) Reduction of false positive results Data on Politically Exposed Persons (PEPs) Ability to log/generate audit trail Criminal risk indicators on a country level Access to standardized reports Adverse media information Access to customizable reports In the area of Entity Screening, which is an integral part of KYC onboarding and ongoing monitoring processes, surveyed respondents have a clear view on the type of data as well as product features they need in order to be successful in their roles. Respondents name sanction lists, complete and accurate ultimate beneficial ownership (UBO) data, information on PEPs, country-level criminal risk indicators and media mentions of entities or individuals involved in AML-related crimes as the top five data needs. Concerning product features, respondents strongly emphasize the need for increased workflow efficiency. The ability to effectively resolve false positives during the screening process and to reduce the number of false positive results tops the feature ranking. This is followed by the need to log an audit trail in the screening process and the ability to access and produce standardized as well as customizable reports directly in the relevant screening system. This ranking across data and feature needs is fairly consistent across the entire financial sell-side, as respondents from large, established banks as well as surveyed individuals working at smaller institutions or challenger banks highlight the same needs. Industries that are increasingly experiencing the introduction of AML and KYC regulation, such as telecoms providers and e-commerce firms, are highly concerned with the increasing risk of cybercrime and thus place high value on reports listing perpetrators and victims of past cybercrime attacks, followed by country-level economic risk indicators and information assessing the financial standing of their counterparties, reflected by financial statements and credit ratings. The need for ultimate beneficial ownership data completes the top five needs for these industries.

8 Cloud technology Recognizing the value-add potential of novel technologies in the area of financial crime prevention, we asked respondents to share their views on the opportunities that cloud solutions can provide as well as possible risks related to storing data in the cloud. When will the use of cloud computing (storing of client records and transactions in the cloud) be acceptable? It is already acceptable 47 Once significant cost savings can be achieved 8 Once data security and privacy controls are equivalent to on-premise solutions 41 Different reason 1 Never 3 0 10 20 30 40 Share of respondents 50% The overwhelming majority of survey respondents foresee acceptance for the usage of cloud computing for the storage of AML and KYC data; only 3% of respondents hold a very conservative view on the potential of this technology. However, while 47% of respondents regard cloud technology to be ready for industry adoption today, 41% recognize remaining data security and privacy control issues, in sum creating a very polarized view across the survey population. This stark contrast is reflected in regional and industry-specific differences across all respondents. For example, 54% of respondents based in Asia-Pacific indicate readiness to apply cloud technology today whereas 50% of financial sellside representatives highlight data security and privacy control concerns.

9 Survey Demographics Total Survey N Split 100% 80% 931 931 931 931 931 Other North America Buy-Side Other Other Customer Records Mgt VP/Global Head C-level NA Large 60% APAC E-Commerce & Service Providers Operations Analyst Medium 40% 20% Europe Sell-Side Compliance Manager Small 0% Region Industry Role Seniority Firm Size Size Breakdown (measured in revenue): Small: <$500M Medium: $500M - $10B Large: Over $10B

10 How Thomson Reuters can help At Thomson Reuters, our KYC and AML solutions help you detect, assess and minimize potential risks associated with your customer and counterparties. We enable clients to: Evaluate and set appropriate risk policies when working with customers in any given national jurisdiction using Thomson Reuters Country Risk Ranking Screen and monitor customers and counterparties against millions of records using Thomson Reuters World-Check risk intelligence Conduct deeper research into heightened risk entities and individuals with Thomson Reuters Enhanced Due Diligence With Thomson Reuters you get trusted answers to increase efficiency and reduce risk in your customer relationships. We would like to thank all those who contributed to our AML survey. Your insights and feedback have been extremely valuable to better understand your current risk management processes and needs as professionals.

No one can help you know your customer like Thomson Reuters. World-Check Risk Intelligence Trusted around the globe, World-Check powers a range of compliance solutions that enable fast effective remediation to help safeguard organizations from financial and reputational damage. risk.tr.com/worldcheck

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