" class="no-js "lang="en-US"> EXCLUSIVE: "How do we solve a 'problem' like AML?" - Livia Benisty, Banking Circle in 'The Fintech Magazine'
Sunday, April 21, 2024

EXCLUSIVE: “How do we solve a ‘problem’ like AML?” – Livia Benisty, Banking Circle in ‘The Fintech Magazine’

If you see compliance simply in terms of technology, you’ve missed the point – and the power – of transformation, argues Livia Benisty, Banking Circle’s Global Head of Business AML

Fintech has changed financial services. It is a cultural as well as a technological shift. By focussing on the customer and challenging the traditional tech stack required to offer financial products, companies have redefined what people should expect of banks and others offering financial services.

Cloud-based has become the new norm, with traditional banks involved in lobbying more conservative regulators and investigating how to best transfer over. Deals are won and lost on the quality of API documentation. Smart phones, in countries where widely used, are not only the core means through which services are accessed (in the case of retail products) but also our main source of authentication.

Web 3.0 will likely revolutionise these changes all over again. And it seems like quite literally everything now has to use AI (even if it doesn’t). However, for all the advancements we’ve made, there are some ways in which we’ve barely changed at all. Throwing technology at a problem while fundamentally thinking about it in the same way, doesn’t solve that problem, it just hard codes it.

One could argue (and I would) that we’ve been so focussed on the product, so obsessed with calling ourselves ‘innovative’ and executing at speed, that we’ve not accounted for the need to embed processes, culture and mindset for continuous change. Doing things with new technology is not enough to truly do something in a new way; that is the path to us all being the dinosaurs of the future. If we do not consider every element of the company as part of the change we are trying to create, we will be right back where we started: with everything taking forever, demotivated and burnt-out staff, and second- and third-line functions ‘slowing things down’.

While I believe this is the case for several teams, the core of my experience is in AML (anti-money laundering).

Long considered a business prevention unit, fintech founders have pushed heavily for efficiency and cost gains in this area. The incredible rise of fintech has meant a parallel market for regtech has blossomed, with this segment raising nearly $19billion in 2021. The number of solutions on the market would have you believe that every part of regulatory compliance can be automated, with data analysed in nano-seconds, likely by an AI-driven solution that can also make your coffee and sort your love life (assuming a clean data lake, infinite budget and a team of engineers dedicated to this, rather than building product you can actually sell).

One of the most advanced (and money-making) areas of regtech is AML/financial crime. It’s understandable; time to onboard is key to the user experience, fraud losses are expensive and, for the amount spent, knowing that 95 per cent of transaction monitoring alerts are false positives is deeply frustrating for any executive. We have an increasing array of choice when it comes to the technology we can implement to help solve these issues, and fintechs have adopted it in droves.

Of course, the need is real. Much of regulatory compliance consists of data collection and storage before being able to analyse and mitigate risk. Automating collection and being able to analyse vast quantities of data holds huge potential for efficiency gains, improving the customer journey, increasing employee motivation and satisfaction and, of course, improving compliance. And yet, we continue to organise and treat these teams much as we did 15 years ago. Rather than bringing AML into early-stage decision-making and design, at best we hand over a finished version and tell them to enable it. We instruct them to make the best use possible of an architecture centred around a vision for a particular product offering; business requirement documents (BRDs) that have never been considered in the light of regulatory obligations, changing market forces and the motivations of our workforce.

That’s at best. At worst, we forge ahead and worry about it later.

We know we should think about it, hire for it, but we don’t design for it. To truly solve this problem we need to stop thinking that you can throw technology at it, and start to recognise that great AML is the by-product of a sensibly-thoughtthrough tech architecture that has taken into account different perspectives on what scaling could imply, and how to culturally and procedurally embed the ability to change in a regulated environment. By including AML as part of a company’s digital transformation from the outset, you end up with a control function that is strategically embedded into the future vision of the company and is adequately prepared for it. In some cases, it may even drive it forward.

Here’s what I think that looks like.

1. Good AML is an integral part of your organisational and operational design

AML and compliance are not a separate function, like an isolated side box on an org chart. When thinking about the tech structure for the AML function and its associated systems, think about the interactions AML would have in the product lifecycle. There will be interactions with sales and business development teams. There will be an assessment of product market fit (e.g. is this customer an appropriate user of the product and what would expected behaviour look like?).

Any use of AI in AML needs good data. There isn’t AML data and non-AML data. It’s not separate. AML will need to use much of what is collected on a client and their activity.

For a bank, this is everything that goes through the core banking platform, treasury function, how the lead was generated, pricing negotiations, etc. This can be embedded early on, preventing large remediation projects and re-mapping exercises. Before buying AML tech, identify the several teams and systems AML needs to talk to. All these interactions need to be replicated digitally. At the first stage of determining how to set up the tech stack of a bank, AML has a role to play.

Every time that tech stack changes, the downstream impact on AML needs to be a core consideration before go-live. These technological interactions need to be mirrored in processes and rituals that integrate these teams and keep them on the same page. Innovative companies will have ideation processes, product design, brainstorming, testing. Regulated entities will need to bring that into governance frameworks, approval processes, etc. If we can design for that early on – creating interactions, rituals and processes that bring the right people to the table at the right time – we foster a culture of openness to change, inclusion and diverse perspectives.

AML is seen as a blocker when ideas for change come to the team late and sometimes second-hand. Advanced warning makes things move quicker; being made part of the decision-making process even more so. Team members do not then constantly feel on edge about what is coming, and this means they can see themselves as enablers, rather than defaulting to a defensive position when their risk appetite is challenged and they feel unable to feed back.

2. Bad processes automated, are still bad processes. They’re just more expensive to change

Particularly when it comes to regulated institutions, there are things that have to be done and governance that needs to be in place. Those things might be mandated by regulation, but there are good and bad ways of achieving compliance. Procedures need to be thoughtful, usable and keep the customer journey and commercial objectives in mind. It takes smart people to build those. Only once that is done can you build your tech to make it happen.

First people, then processes, then tech. Otherwise it won’t work.

3. Build a company that is designed for change

We have focussed on technological advancement and creating a better proposition. We’ve instigated cultures of execution, drive, speed. We talk about scaling as a skillset. All of this makes sense and has led to huge successes. And yet, we’ve not realised that to avoid being the clunky, legacy incumbents of the future, we have to build in the ability to change. That ability will keep companies nimble and relevant in the short and long term.

When building processes and systems, do we consider what happens if any of our underlying assumptions or characteristics change? Do we hand people the tools for dealing with the implications? I think we unconsciously build in (at least) an element
of rigidity that comes back to haunt us.

Being able to execute and scale doesn’t show an ability to enact and deal with change. You can scale a company and change nothing. It’s a short-term win, which, arguably, works for an industry that is increasingly incentivised by investment rounds and IPOs to act with that timeframe in mind. But it won’t lead to ongoing success. It’s about a mindset; open-mindedness and a willingness to embrace change rather than fear it. For a team that’s ready for it, the new product releases, new markets and new pieces of regulation mean a simple process of gap analysis; questions to be answered and processes tweaked.

For teams that aren’t, it’s a frightening concept that threatens the way we’ve always done it, usually at a time where we are overworked and overburdened as it is. When we challenged the fundamental way of doing banking and finance, we never took this thing that causes everyone so much frustration and pain and gave it a seat at the table. We need to go from caring about AML to designing for it; making AML a core, integrated pillar of the digital transformation we are all so proud of ourselves for achieving. Because it will keep being that overburdensome revenue sucker until we do.


This article was published in The Fintech Magazine Issue 25, Page 16-17

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