Cost effective compliance and risk management options

Deliver More with Less

Credit Unions are working harder than ever to serve their growing memberships with quality and efficiency.  Quality dictates fast, reliable service based on the needs of the member.  These services increasingly include the use of mobile and online channels which increase a member’s convenience but adds more risk to the credit union.  A credit union must provide more products and services to a growing membership base without growing their costs at the same pace.  Call it “delivering more with proportionally less”.

While the “do more with less” thinking is more often used as a management slogan, there are concrete ways to deliver more with less. First, you can deploy your current technologies more effectively and efficiently; second you can leverage current resources and skills across your compliance and investigation teams or external providers to share information and effort more efficiently.

Cost Challenges and Convergence

Mounting regulatory requirements and risk management requirements can overtax a credit union to the point where hard trade-offs between quality of service or cost efficiency must be made.  Credit union leadership recognizes these challenges as long term issues that must be addressed with long term strategies, even while supporting short-term needs.  For example, adding headcount can be problematic because it increases costs disproportionally to revenue and adds training and management costs.

The AML and fraud disciplines are converging and increasing the need to share data across functions.  For example, if an ID Theft program identifies a potential ID theft event, that alert needs to be visible immediately to the AML program. An account takeover should drive a customer’s risk rating up and could trigger the need for an Enhanced Due Diligence (EDD) effort.  As part of investigating the alert, you would review recent customer transactions and potentially file a Suspicious Activity Report (SAR).

Likewise, when SARs are filed involving certain kinds of transactions and locations, an AML alert can be used by the Fraud area to motivate reviewing the customer’s transactions for potential fraud. The convergence of AML and fraud calls for data sharing and timeliness.

Leveraging data about customers, including publicly available negative news and other media, also improves credit risk monitoring.  Lending officers and underwriters need to quickly know when a current or prospective customer has been indicted or otherwise implicated in an illicit crime or association. Longer views of a customer’s history in public information sources can describe otherwise unknown or undisclosed business associations, assets and property interests and legal actions. The inclusion of more data sources, better integration and more rapid filtering and delivery is a key leverage point when operating against large customer and prospect lists.

Using What You Already Have

Each point solution for AML, OFAC & sanctions screening, Identity Verification, ID Theft Red Flags, Member Identification Programs and related capabilities each add cost beyond their individual price tags.  They force credit unions to integrate, to the best extent possible, data from multiple systems as well as the required feeds from transactional systems.

Integrated application suites usually come at a higher overall licensing cost and so also reflect the cost of integration.

Instead of a large and costly approach, you can consider a simpler, incremental approach.  You can start with case management and workflow systems that allow you to configure your rules for case identification and work flow routing. For example, one mid-sized institution recently broke from traditional approaches to generating alerts with escalating review cycles until they merited case treatment.  Under the new approach, all exceptions go directly into a case management system. By enhancing the case and routing rules, you can very rapidly filter cases to eliminate false positives and non-material alerts. Other cases get deserve greater scrutiny. In both situations, the system generates statistics on all case flows and queues.

While this approach does not represent a total convergence of AML and fraud, it is a collaborative approach and a good first step. It is also a small step to add in the sources of identify verification, watch list and sanctions screening and negate news or media searches so that results drive a single risk rating for use in AML and fraud management.

Summary

An effective Case Management System merging both AML and Fraud Management requirements is a poignant example of “delivering more with proportionally less” and is just one example of emerging best practices in the credit union environment that allow for cost effective compliance and risk management.  Consider your environment and assess your opportunities for cost effective compliance and risk management.

 

 

Dan Meers

Dan Meers

Dan provides enterprise data management and governance consulting based on over twenty-five years of experience with clients in financial, retail, manufacturing, government and other markets. He serves as the President ... Web: www.k2-solutions.com Details