IBM RegTech Innovations

IBM and Promontory: Looking for a needle in a haystack with Watson

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Carrying out Know Your Customer (KYC) due diligence is a delicate balancing act. On one side you’re always looking to streamline your customer’s onboarding process with quick and painless client verification and due diligence. On the other, you need to observe ever-changing regulations, manage voluminous amounts of structured and unstructured data, and perform often repetitive and mundane tasks, opening the door for human error and mistakes. KYC professionals often say it’s a “needle in the haystack”, finding that one link, in a sea of false positives, repetition and manual tasks, that may point to money laundering. At Think 2018, Sam Kalyanam, IBM VP IBM FSS, Watson, and Marc Andrews, IBM FSS Offering Management, and Chris Sidler, Director at Promontory Financial Group together outlined the pitfalls and challenges of meeting KYC compliance, and how IBM and Promontory have been able to provide the tools to augment the process greatly.

 

KYC shortcomings and solutions

If you have been ever part of the KYC process, things like incompatibility between legacy systems, the manual and mundane processes to sift through KYC records, and an extremely high level of false positives lend themselves to a difficult and sometimes tedious process. For false positive alerts specifically, “Most organizations end up filing a suspicious activity report for only 1 to 2% of all the alerts that are generated. That means you have a 98% false positive rate” – says Mr. Andrews on the overwhelming amount of false alarms and that slows the entire process down greatly. The sum of these parts are higher operating costs from start to finish.

However, IBM Financial Crimes Insight for Watson Due Diligence can provide a solution with a multifaceted approach. In incorporates things like Robotic Process Automation to automate repetitive tasks that minimizes workloads, lowers error and false positive rates, and delivers greater standardization, consistency and efficiency.

Another frequent pain point of the process that arises, as IBM’s Sam Kalyanam describes, “One of the biggest complaint of corporate clients is asking for public documents, why are you coming to me with this question?” Surprisingly, asking for public documents, and also duplicate document requests to clients is a common issue. To prevent this, IBM FCI incorporates an external data aggregation system that avoids unnecessary customer requests, reducing friction while speeding up and streamlining the process. Addressing the ongoing false positive issue, specifically ones that are related to negative news that can slow down analysis, IBM FCI actively uses cognitive analytics that quickly identifies relevant articles, weeds out the irrelevant and repeats, and provides context annotation to expedite the decision making process, or as Mr. Kalyanam describes, “For an analyst, speed is everything.”

Where is KYC going?

Looking towards the future, Mr. Sidler of Promontory explains that “By and large regulators are embracing new technology”, and that the industry is constantly looking for new ways to make their jobs easier and more efficient. Cognitive AI is front and center in achieving these goals, though some may say that this kind of artificial intelligence might replace humans, but we contend, it’s not replacing humans but instead, helping them do their jobs better.

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