Have banks reached an AML compliance inflection point?

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IBM RegTech Innovations.

Nearly two years ago Lloyd Blankfein, CEO of Goldman Sachs, predicted that the demand for compliance analysts to meet the institution’s regulatory obligations would soon be leveling off:

This has a Y2K feel about it – that is, we have to hire additional people because we have to get ourselves up to speed. I think once we catch up and once automated, we probably will be able to reduce that headcount in some of these costs.

While getting “automated” may seem straightforward, three major factors dispute his assertion.

“There are some things you learn best in calm, and some in storm.”

In case it isn’t clear from this Willa Cather quote, financial institutions don’t have the luxury of waiting for relative calm in terms of their compliance obligations. If anything, they need to take immediate action before the real storm hits. Consider these factors:

  1. Over the last decade, banks have been fined hundreds of billions of dollars, and there are no signs that regulators are going to relax their scrutiny in their search for all matters of infractions, especially in the area of anti-money laundering (AML) and counter-terrorist financing.
  2. According to the 2017 World Payments Report by Capgemini and BNP Paribas, non-cash transaction volumes are expected to reach 725 billion globally, a 67% increase from five years prior. Also, innovations in the payment industry are increasing the variety of transaction types, creating further complexity. (With the current number of false positive alerts from AML transaction monitoring solutions hovering above 90%, one could surmise that the number of alerts would move in relation to the total transaction volume. Given current backlogs, are you ready for 67% more alerts?)
  3. On average, major banks are spending more than a billion dollars on their financial crime and compliance programs. Also, the number of compliance and financial crime analysts is expected to grow at a rate of 10% over the next decade, according to the Bureau of Labor Statistics, even though financial institutions are supposed to be “getting automated.”

This confluence of events creates a perfect storm that cannot be managed by continued investment in resources alone. Hence, banks will be forced to transform and innovate, and we see that inflection point is already fast approaching.

However, instead of seeing this as a burden, financial services organizations ought to view this is an opportunity to move away from their “faster horse” mentality of hiring to keep pace with demand, which often leads to greater customer friction. They can truly rethink how they meet their regulatory obligations and focus on client experience.

No silver bullet for AML excellence

Financial institutions have made substantial investments in a patchwork of systems and solutions to handle AML detection, investigation, and reporting. Advances in artificial intelligence (AI), machine learning, robotic process automation (RPA), and natural language processing (NLP) each offer incremental improvements to the way institutions address AML compliance. However, they are not enough on their own.

Let me be clear: no one technology will resolve the current issues of high false positives, ineffective detection, highly manual processes, and a need for specialized analysts to be involved in AML compliance. Humans are capable of handling complexity and will always have a role in investigations, even as all this technology goes mainstream. But that doesn’t mean the initial analysis and repetitive aspects of their roles can’t be vastly improved. Application of advanced analytics and automation can enable analysts and investigators to make more informed decisions and focus on higher-value tasks. Taken together, technology can make AML processes more efficient and effective, but institutions and regulators must find common ground as adoption grows.

Innovation doesn’t have to be in isolation

Often in the financial industry, the idea of sharing is akin to surrendering a competitive advantage. However, when introducing technology like artificial intelligence, RPA, and NLP, the best way to gain regulatory blessing is to achieve critical mass by collaborating with your peers. Having that transparency with regulators into the inner workings of layered technology and the ability to explain why a certain transaction or individual was escalated or de-escalated are critical to making these advancements not only palatable but also preferable.

Dedicated analysts and investigators are the heart of every institution’s risk and compliance program, and that will never change. Nor should it. Advanced analytics and automation offer the potential to free them up for more rewarding and higher impact tasks like managing risk and complexity and making valid judgments. Mundane and often low-value tasks, like data collection, are taken off their plates, and the need for additional hiring is reduced. Preparing your institution for the imminent influx of transactions and alerts boils down to this question. How will you address it: build a faster horse, by accumulating a bloated workforce, or make a giant leap forward, investing in the future of compliance?

To learn more about how IBM is preparing financial institutions for this next phase of AML compliance, visit or watch our video.

Head of Financial Crimes & Compliance, IBM WFS

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