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Biz Performance

Putting risk-based approaches into effect for FSI

Posted DateTuesday, 29 April 2014 00:00

The key to managing risks is the ability to identify the sources and assess the extent of its impact to the business.  Understanding of those risks will then set the context for action-taking and allow better allocation of resources to effectively manage and mitigate those risks.

In September, 2013, Bank Negara Malaysia issued revised policies on Anti Money Laundering and Counter Financing of Terrorism (AML/CFT), which includes an obligation for a wide range of reporting institutions to adopt a risk-based approach in identifying, assessing, and understanding its money laundering and terrorism financing risks. Proper objective assessment and understanding of the risks will allow reporting institutions to tailor appropriate risk controls and establish proper policies and procedures to mitigate the risks. 

General Manager, AML – International, LexisNexis Risk Solution, Chris Correia explained, “The revised policies also focus on refining Customer Due Diligence (CDD) requirements to reflect the varied risk levels.”

He also added that the cost of implementing the Customer Due Diligence under the risk-based approach may be high at the early stages of implementation but the establishment of a robust risk framework will minimise institutions' reputational risk and lower the overall costs in the long-run.

“Assessment of the risks should be objective and aim to achieve real outcomes of reducing criminal actions and not just guarding against regulatory sanctions.  Proportionality is key, this is what a risk-based approach is all about.  A well-balanced risk based approach ensures that a compliance programme’s focus is directed at managing the greatest risks most effectively and that the effort to managing lower risks does not lead to process seizure,” said Correia.

EITN: What is the role of data and technology in helping FSIs with risk management in the context of AML and CFT?
Correia: Risks relating to anti-money laundering, anti-bribery and sanctions screening weigh heavily on financial institutions and their employees. In spite of this, there is a lack of readily accessible customer data for due diligence. Adding to the challenge is the heterogeneous nature of the Asia Pacific landscape, where factors like language and culture can impact the operational process of risk management.

For example, people in a particular country or from part of a particular culture frequently have the same or similar names. These same or similar names make it very challenging for generic software to differentiate between them. Additional pieces of information such as biometric data or key personal identifiers that can correctly identify the individual often not readily available. There often is also a lack of consistency in translating / transcribing names in native languages to English.   Technology can also help to unravel complex corporate structures that are designed to shield the identities of their owners.

Data and analytics solutions with due diligence capabilities will help organisations become more responsive to changes in the regulatory regime. Organisations should consider a solution that can help process, analyse, and find links and associations in high volumes of complex data quickly and accurately. At the same time, the ability for the solution to scale from tens to thousands of nodes handling petabytes of data and supporting millions of transactions per minute is crucial.

Banks and financial institutes in Asia Pacific will be able to scale for innovation and growth through the competitive advantage they have gained from the due diligence and insight of leveraging today’s cutting edge innovation.

EITN: How are Lexis Nexis’ solutions in this space different from analytics solutions by SAS or FICO, for example?
Correia: LexisNexis Risk Solutions provides both specialized technology and data that has been developed specifically to manage compliance and fraud risks.  This focus over many years has meant that LexisNexis Risk Solutions tools complement and enhance customers’ risk management processes across compliance workflow:

•Anti-Money Laundering: LexisNexis Risk Solutions offers anti-money laundering expertise, including compliance tools and methods, to banks and other financial institutions all over the world. Its solutions seamlessly integrate with banks’ systems to provide flexibility and optimal security and privacy.

•Fraud Detection and Prevention: LexisNexis Risk Solution helps reduce fraud risk by quickly and intelligently analyzing billions of records to uncover relevant information for better informed decision-making. In addition to extensive residential profiles, assets and derogatory histories, its solutions leverage the power of our proprietary algorithms and scoring capabilities to identify fraud patterns.

•Risk Mitigation: LexisNexis Risk Solutions help mitigate risk and manage assets with an expansive, on-the-ground commercial due diligence network and the most current, accurate reports designed to fit specific needs. The company manages larger volumes of data than anyone else and delivers the correct targeted data to make better decisions and protect the integrity of organizations.

EITN: What are some of the international trends for AML and CFT that Lexis Nexis has observed?
Correia: More stringent enforcement of existing regulations, exhibited by large and frequent regulatory actions, has resulted in global financial institutions seeking to standardize their AML Compliance policies and procedures across geographies. Banks and financial institutions in Asia are in a unique position in that they need to adapt to new regimes and changing regulations, such as local transposition of FATF guidelines, or new sanctions programmes in response to breaking political developments, while meeting local requirements that can differ from global mandates.

The pace of regulatory change is certainly moving faster. Regulation is becoming more in-depth, and the focus on regulation has moved beyond just technical compliance to include the efficiency of the entire risk management program. The evolving banking landscape in Asia has resulted in new forms of risk.

Banks now need to look at ways to manage the risks that have come about with new developments in their product offerings. From mobile banking to electronic banking, banks are serving their customers across a widening array of channels. The proliferation of mobile devices has given rise to banking services for large unbanked populations in developing countries. On the other hand, the rapid internationalization of the renminbi has brought about various implications and risks to currency and trade. All these developments mean that we are witnessing today new areas of risk which require extended chains of extensive investigations that need support from the right technological solutions.

EITN: Do you have any trends forecasts to share for next 5 years, for this solutions area?
Correira: The following are my forecasts:
(i)Greater convergence of the systems and data used to manage sanctions, AML, bribery, fraud, tax evasion and reputation risks into a more holistic approach that manages a single view of a customer across geographies and lines of business
(ii)More effective use of analytics and news information  to make connections between customers and evolving risks
(iii)Increasing regulatory expectations concerning the frequency of risk assessments and the implementation of this process into technology; growing expectations that banks will test their systems regularly to ensure that effectiveness of its risk policy
(iv)Increasing workload for compliance departments, driven by new regulations, exerting continued pressure for operational efficiencies