The Virtual Compliance Officer

Tuesday 31 January 2017

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The identification and on-going management of customers that pose a high, financial crime risk is a persistent challenge for many financial institutions (“FIs”). Rainbird partner Protiviti provide their point of view, describing how Rainbird’s can help by providing cognitive directed advice.

This is particularly the case in institutions that focus on the provision of wealth management and corporate and investment banking services on a global basis.

Local business practice, the absence of reliable information sources and the significant efforts by some customers to obscure an ultimate beneficiary or a controlling interest conspire to exacerbate the problem. FIs need the ability to isolate, from the thousands of on-boarding activities that take place daily, the few that genuinely present risk.

These need the skills and judgement of a highly experienced individual to determine whether the client can be on-boarded with the FIs risk appetite.

The process of on-boarding and ongoing monitoring of a customer’s activities throughout the customer relationship is therefore very labour intensive, requires high quality data and a considerable measure of judgement to determine how policy should be applied to each case.

Unfortunately years of under investment in on-boarding coupled with cost cutting measures have had the opposite effect. This has led to poor quality customer data, insufficiently skilled resources in the front office and client on-boarding and, inconsistent application of KYC processes and procedures.

Customer acceptance is based on, amongst other things, assessing a customer’s risk attribute (e.g. whether a customer is a politically exposed person (“PEP”)). This is done in isolation rather than assessing a combination of factors based on available customer data. More experienced KYC and Financial Crime Compliance (“FCC”) practitioners perform more details analysis to arrive at a more informed outcome. However, these skulled resources are limited and there is a risk that the more detailed analysis is therefore not consistently performed.

Rainbird as RegTech

The value proposition is to ultimately provide a virtual AML/KYC Compliance ‘bot’ (could be applied to other areas of compliance as well but start with AML) which will be able to perform detailed analysis that would have otherwise been performed by an experienced KYC analyst and/or FCC instantaneously with an increasing level of confidence.

Where there is an event that changes a customer’s risk profile, the ‘bot’ will provide an additional pair of eyes to identify any increased risk concerns by making and assessing connections with various data points consistently.

Depending on the level of confidence of each ‘alert’ generated and the current risk rating, a risk based approach may be applied to determine whether further investigation is required. The ‘bot’ can also act as smart FAQs.

The benefit of employing AI (or cognitive technology) to KYC is that it codifies the intuitive assessment of a customer profile above and beyond training that is provided on KYC standard operating procedures. AI can also improve the effectiveness of KYC procedures performed, provide an indicator on the effectiveness of an FI’s risk rating methodology and reduce the over reliance on quality control and FCC functions, thereby reducing cost.

This is a point of view created by the Internal Audit, Risk, Business & Technology Consulting division of Protiviti, a Rainbird partner.