Fintech in Atlanta #9 - Interview with Dave Excell, Founder of Featurespace
Protecting your Organization and Customers from Money Laundering Crime
Q&A Interview between Dave Excell, Founder of Featurespace, and
Payments & Cards Network
Q1) How has the evolution of money laundering impacted how financial institutions detect it?
The methods criminals use to commit financial crime have evolved with technology. The M.O. for any money launderer is to fly under the radar and services like digital cards, mobile, faster payments and online financial vehicles help them achieve that. And more recently, they've found ways to undermine cryptocurrencies as well.
It's an extremely pervasive activity because of how hard it is to detect and also quantify. The United Nations Office on Drugs and Crime estimates that the annual total cost of money laundering is between two and five percent of the global GDP (between $800 billion - $2 trillion).
Q2) What are some of the biggest challenges financial institutions (FIs) face related to Anti-Money Laundering (AML) regulations?
AML regulation in the U.S. really began in 1970 with the enactment of the Bank Secrecy Act (BSA) and over the next two decades, many other legislative efforts were launched globally. In 1989, the Financial Action Task Force (FATF) was formed by the G7 with the intent to create international AML standards. Following the September 11 attacks in 2001, FAFT expanded its mandate to include efforts to combat terrorist financing.
There have been many initiatives around AML detection, but criminals are extremely intelligent and undyingly persistent, and risk and compliance officers typically have to connect many dots to uncover dirty money after it has already made its way through a financial institution. As financial products and services have evolved to facilitate faster money movement, criminals have found a way to exploit them and legacy AML solutions haven't kept up.
The systems that risk and compliance officers use are typically siloed, and the lack of shared insights across an organization results in costly, sub-optimal AML detection strategies. Since the 2008 financial crisis, $26 billion in fines have been imposed globally for non-compliance with AML and Know Your Customer (KYC) sanctions. And that's not even including the reputational damage.
Thankfully, there's a new breed of intelligence-led transaction monitoring technology that enables a more comprehensive understanding of customer behaviors and continuously improves and adapts to new risks.
Q3) Can you briefly touch upon the differences in AML and KYC?
New account opening is typically one of the easiest ways a criminal will get a foot in the door to the financial institution, so KYC guidelines were created to mandate the verification of a person's identity before any services are provided. When opening an account, KYC mandates an applicant submits proof of identity, proof of address and in some cases, even a recent photograph. Verification of a new customer's identity is only a single component of AML regulations, which are a totality of the measures banks take to prevent and combat money laundering, terrorism financing and other financial crimes.
Q4) So, how does Featurespace help FIs in the fight against money laundering?
Since our beginning in 2008, we’ve grown to become a globally recognized and trusted leader in fraud prevention. Recently, we’ve built adaptive AML rules and models into our ARIC™ Risk Hub, providing banks and credit unions with a fully automated solution that monitors for suspicious activity in real time. It does this by leveraging the power of adaptive behavioral analytics, which we invented, to detect money laundering activity faster than ever.
By learning the good behaviors, the Risk Hub identifies anomalies and automatically prioritizes suspicious alerts for investigators, while improving future transaction monitoring by continued learning and adapting to the newest threats.
Unlike traditional AML solutions, the Risk Hub combines traditional and adaptive rules as well as adaptive models that continually update as changes in customers’ behavior are detected. This results in improved transaction monitoring, which provides FIs greater control of their risk exposure.
Q5) How is Featurespace’s ARIC platform different from more traditional solutions used by FIs?
Many banks are using a traditional rules-based transaction monitoring system that generates a high volume of false positives. This requires manual consolidation and time-consuming investigations that lead to operational fatigue. Using the Risk Hub, these banks can generate alerts with greater accuracy, while uncovering more suspicious activity reports (SARs). Aggregate results from competitive industry trials of ARIC versus other industry-leading platforms are telling. In one case, there was a 12 percent reduction in total alerts, a 133 percent increase in the amount of suspicious activity that was identified, and 33% of SARS were detected a month earlier than the previous system. These types of results are directly attributed to our ability to optimize financial crime detection by harnessing our proprietary Adaptive Behavioral Analytics capabilities.