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Should financial institutions consider outsourcing part of its AML work to third parties?

2019 09 17

With the increased regulatory scrutiny and demands, financial institutions find themselves obliged to continue to invest heavily in the anti-money laundering and sanctions compliance programs. I see this phrase very often now; I read it like a mantra. I believe it. And the more I read it, the louder the question gets: invest where?

As I am not alone in raising this question, here is my answer to it.

The high-value investment is mainly driven by the increased costs of technology and human factors, but also by inefficient planning and executions of the operational model, which exposes the financial institution to failure of controls. Accordingly, the risk of being hit by hefty fines and facing reputational damage increases.

The banks should consider more efficient utilization of their resources by determining what can be achieved in house and what can be assigned to third party providers, known as Managed Services.

To start exploring this option, one should differentiate between core functions and the strategic anti-money laundering duties.

Core functions are repetitive and require high labor participation. The anti-money laundering duties are usually more complex and require in-depth knowledge of business model and strategy, the complexity of the product, and the defined business risk appetite.

• The core operational functions require high labor with intense manual work. Those are mainly the Client Due Diligence (CDD) jobs during the Know Your Customer (KYC) onboarding and ongoing relationship. It includes the client’s screening against globally-known economic sanctions and peps lists, negative media coverage, periodic reviews, regular monitoring of KYC records and transactions, payment screening, investigation, and off-boarding.

• As for the strategic functions, those would include performing company-wide risk assessment, regular review and testing of the Anti-Money Laundering (AML) policy and program, business advisory, training and development of teams, governance, strategic planning and staffing, etc.

Redefining an effective operational approach is becoming a necessity with the increasing cost of compliance, and simultaneously, the continuous pressure for businesses to achieve financial results while lowering operational costs.

Financial institutions are at need more than ever to revolutionize the operational model to scale up the AML function and help meet the ever-changing regulation. In fact, not only regulation but greeting and meeting high volumes of customers without losing that seamless experience at the very entrance to the financial territory.


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