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My Compliance Wishes for 2019

2018-December-27

It’s hard to believe that 2018 is coming to an end. At first, I was tempted to blog in a “2018 Retrospective” manner, but it just didn’t seem inspiring. Instead, I thought I’d share with you some of my wishes for 2019, from a financial compliance perspective. So here they are, in no specific order of importance:

  1. We collectively put a stop to human trafficking. This is a $150B/year industry that preys on the poor and unfortunate. More than 75% of human trafficking victims are women and children and 60% of them are forced into sexual slavery. I hope to see banks and financial institutions taking bold steps in 2019 to stamp out human traffickers in their portfolio and publicly take up the cause of eliminating modern slavery.
  2. Customers stop thinking that OFAC screening gives them KYC/AML protection. For many years, customer screening programs were synonymous with sanctions screening (especially OFAC screening). However, sanctions and watchlist screening has broadened to the point that there are more than 700 lists worth screening against. Best-in-class organizations have learned that for KYC/AML protection, they also need to screen against politically exposed persons (PEPs) lists as well as adverse media (see the next wish).
  3. Adverse media becomes mandated for compliance screening. A recent study by the FinTrail FinCrime Exchange (FFE) revealed that 64% of Fintechs feel adverse media should be a mandatory screening element in every customer due diligence (CDD) program. The unfortunate reality is that most financial criminals are not politically exposed persons or on sanctions lists.  They’re just really bad people who commit heinous crimes like money laundering, bribery, human trafficking, murder and more. The only way to prevent these criminals from entering the global financial system is through the use of high-quality adverse media content. That is another of my hopes for 2019.
  4. People get real about AI and Machine Learning. Don’t get me wrong. Artificial intelligence, machine learning, predictive analytics and other advanced technologies have amazing potential to transform the efficiency and economics of financial compliance. However, there is a lot of hype around these technologies. My hope for 2019 is that everyone realizes these technologies are just tools… which, when applied to the right situation, can have a huge impact. However, much like trying to use a hammer to insert a screw, applying technology in the wrong way will fail every time.
  5. People realize that search engines are not the foundation of a successful CDD program. I still find it amazing how many well-respected customers are still using search engines as the basis for their CDD program. Back in October 2018, I blogged about this topic and got a ton of feedback. Most people agreed, sharing stories of frustrations using search engines to research potential customers or attempting to clear alerts and plow through the deluge of false positives. My hope for 2019 is that search engines keep their place in our hearts for basic queries and fact-finding and stop being used for hardcore compliance screening.
  6. Customers wake up to the fact their CDD programs haven’t evolved and matured nearly as much as their business has changed. Banks and financial institutions have faced tremendous changes over the past 5-10 years and the rate of these changes continues to increase. From online banking and mobile payments to peer-to-peer lending and location-based advertising and targeting, technology continues to transform the way banks interact with their customers. So you’d think that compliance programs would have innovated and evolved to keep pace with the business. However, this is rarely the case. All too often, compliance operations teams are still using the same tools and manual processes, and are getting buried by alerts and false positives. My hope for 2019 is the leaders of these functions realize there is a better way, which doesn’t have to cost a fortune. A combination of the right data, the right screening platform and a proven screening partner can dramatically improve screening outcomes and keep better pace with the rate of business change.
  7. Regulators realize that AI solutions that haven’t been trained on mountains of real-world data are not ready for primetime. This is related to my 4th wish and it’s a bit of a sore point with me. In fact, I recently blogged about this one, too. Take a step back 5-10 years. You’ll remember how email spam was such a problem: our inboxes were full of all kinds of garbage. Then, companies started investing in spam filters… not just rules-based filters but filters that could actually “learn” what was spam and what wasn’t. The key to this learning was running hundreds of millions of emails through these filters and having them learn from the recurring patterns they identified. Today, our spam filters are quite sophisticated and our inboxes are more garbage-free. The same is true with customer screening. Developing a true AI-enhanced customer screening platform requires years and years of actual screening data in exactly the same way spam filters needed hundreds of millions of emails to learn from. My hope for 2019 is that this “lightbulb” goes on for regulators and customers alike. The first question that comes to mind when they see a new AI solution should be “where’s the data you used to develop and train these models?”

I’m sure with a bit more contemplation and another glass or wine or two I could come up with another 5 or 10… or 20 wishes.  However, I think these seven capture many of the fundamental hopes for 2019. The combination of increasingly complex financial crime, growing regulatory pressures, increasing margin and competitive forces and rising customer expectations means banks and financial institutions need to take a new look at customer screening in 2019…. At least I hope so.

Best wishes for a healthy, prosperous New Year!

20

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