Guest blogger Ben Lopez explores myths preventing mid-sized banks from improving financial crime compliance and risk management.

As large banks strengthen their defenses against financial crime, the bad guys want easier targets. This puts mid-sized banks directly in the bullseye. In the United States alone, about $300 billion in illicit proceeds are generated annually. Of this, about 70 percent is laundered through a complex network of financial institutions.¹ Our research reveals that incidences of illicit financial flows continue to take advantage of smaller banks, which create a new form of previously unseen layering behaviors. The risk officers we talk to in these banks know the financial and reputational risks they face. Yet some have bought into myths that prevent them from turning awareness into action.

Myth 1: There’s never a good time to act

Financial crime compliance staff in mid-sized banks feel like they are treading water. And they’re right. Consider that Suspicious Activity Report volumes increased 55 percent over the past three years.²  Not to mention the resource drain associated with high false positive rates, regulatory audits and remediation efforts. With the workforce so overwhelmed, taking on yet another project and pulling resources to implement new transaction monitoring capabilities seems out of the question for decision makers.

But their logic is flawed—the ideal time does not exist. There will always be pressures on the workforce from regulators—and from fraudsters who get more innovative and devious by the day. Moreover, waiting to act is a high-risk gamble. Real vulnerabilities exist now. The sooner that banks act, the sooner they can protect themselves from the threat around the corner. Think of it as an insurance policy that requires “spending” an extra 10 percent of resource labor now to save 30+ percent down the road.

Myth 2: The problem is too big to tackle

Mid-sized banks are caught in a David vs. Goliath scenario when it comes to financial crime. They have limited resources for the fight and their adversaries are daunting. Thankfully, banks do not have to go it alone here. Resource sharing is an ideal approach for this market, and federal regulators agree. In a recent joint statement, they announced that mid-sized banks can share resources like technology to address BSA/AML compliance.³ While regulators will clearly hold banks accountable for their own compliance obligations, they will not be prescriptive, or restrictive, in their oversight.

Mid-sized banks have a choice to make. They can stick with the status-quo and watch the pressures they face today worsen. Or they can join forces to chart their own course against financial crime.

The good news is that we have already created the “rails” for banks to collaborate in this way. Several of our clients are using this solution today. Developed with banks, the Accenture Financial Crime Analytics Utility is a secure, standardized, data analytics-as-a-service solution that helps banks to work collectively. They share non-competitive data and innovate together to attack risk as it evolves. As more banks onboard, the value to all grows exponentially.

Myth 3: The investment is hard to justify

Not only are mid-sized banks losing money through fraud and criminal behavior, but penalties for compliance failures and associated remediation costs can soar into the tens of millions. It’s no wonder that justifying spend in a cost center is difficult. But with the Accenture Utility, banks can lower costs in several ways. They can avoid penalties by using data insight to zero-in on the “needle in the haystack” that regulators expect them to find. Banks can also save through more effective resource allocation. One of our initial members redeployed staff and reduced direct labor costs by 30 percent. The bank also lowered model validation costs by over 85 percent. Plus, banks no longer have the cost of third parties for software and system changes.

By buying into ready-made scale today with our Utility, banks can also avoid the cost of future investments in infrastructure and capabilities. Our member banks also benefit from the advantage of continuously evolving functionality. This will include new applied-intelligence capabilities like machine learning and natural-language processing. What this means is that banks can lay the groundwork for a move away from rules-based transaction monitoring systems without additional investments. We consider it to be a leg up on tomorrow.

A critical choice

Mid-sized banks have a choice to make. They can stick with the status quo and watch the pressures they face today worsen. Or they can join forces to chart their own course against financial crime. We invite you to learn more about the Accenture Financial Crime Analytics Utility and read our new Banking Exchange article on this topic.

 

¹ United Nations Office on Drugs and Crime 
² U.S Department of the Treasury, FinCEN Suspicious Activity Report Statistics 
³ U.S. Department of the Treasury, “Federal Agencies Issue a Joint Statement on Banks and Credit Unions Sharing Resources to Improve Efficiency and Effectiveness of Bank Secrecy Act Compliance” 10/3/2018