Retail Banks Unify Systems to Fight Crime

The rising cost of fighting financial crime in retail banking is driving the integration of systems as previously disparate divisions come together, along with a greater focus on accurately identifying suspicious activity, according to a recent Datamonitor study.

The U.K.-based research firm found that with crime detection and prevention programs spread across different divisions within a financial institution, the rising costs of IT systems and experts required to resolve these issues have become difficult to track.

"Right now, banks are starting to realize the costs are growing. And they may see some overlapping business processes, so now is the time to start standardizing them," said Jaroslaw Knapik, New-York-based author of the report and analyst with Datamonitor's financial services technology team.

Divisions like money laundering and fraud prevention, said Knapik, have different origins, with the former having roots in regulatory compliance and the latter in risk. Vendors have traditionally built different systems to monitor suspicious activity in those two areas, but the shared risk-based approach is driving vendors to establish a common "risk engine" that can be customized for different purposes, said Knapik.

The sundry point solutions like those for card fraud, online fraud and money laundering are being integrated by way of dashboards and management systems, said Knapik, in an effort to reduce duplication of labour and drive down costs.

Technology vendors specializing in financial and criminal management tools have come forward with unified platform offerings, agreed Ivan Zasarsky, national leader for anti-money laundering, with Toronto-based professional services firm Deloitte. "That's a common theme among these vendors," said Zasarsky.

The unified offerings typically provide a workflow and reporting capabilities for things like transaction monitoring, detection of suspicious activity, and tracking and investigating those alerts, said Zasarsky.

Consolidating multiple divisions across a financial services institution, he said, is especially important today given the numerous channels of operations, like Web, mobile, face-to-face. "All of those new channels are additional avenues of risk. The only way that financial institutions can get a proper view is to consolidate the information that's coming in," said Zasarsky.

The Datamonitor study also found that, besides deploying unified systems, banks are turning their attention to systems that render greater accuracy when identifying suspicious activity. Knapik said that while banks cut costs by automating processes like deviation detection, the irony is that it created an unmanageable influx of events flagged as suspicious, which really only drove up costs of investigating those events.

"The primary reason that banks were looking for systems to provide technology for accuracy, is because they want analysts to follow up on only the most important cases," said Knapik.

The labour required to scrutinize suspicious activity is only compounded by the reporting requirements to regulatory bodies, said Knapik.

Financial institutions need accuracy if they are to be effective and efficient, said Zasarsky. And, while replacing manual processes with automation is a clear improvement, "the bar for what constitutes an acceptable solution has risen."

Deploying systems that render greater accuracy, said Zasarsky, can certainly reduce the extent that false positives and false negatives have banks wasting time and resources "chasing ghosts."