Organisations need a panoptic approach to fight financial crimes

Over the last few years, the prevalent attitude of financial institutions has been to approach and combat financial crimes by solving one particular problem at a time without a focused, integrated approach to counteracting what are interrelated issues. These point solutions to financial crimes, widely used to fix a new problem or implement a new policy quickly, became standard practice with singular tools for each type of criminal activity, such as money laundering, card fraud, or employee fraud. Financial institutions, time and again, have implemented discordant technologies and systems such as customer information databases, transaction systems, detection engines and case management solutions.

Although each solution does what it is supposed to and does it well, this tendency to invest in limited point technologies (devised to isolate and identify only one component of activities deemed financially criminal) has created disconnects. This has resulted in silos, fragmented processes and inadequate tools, whilst hampering the evolution of best-practices and failing to recognize the scale of the threat from financial crime as a whole. It has also restricted organizations from sharing information amongst them - within and without – creating an atmosphere of isolation within an industry.

Too often, this disparate approach to policies, information systems, technologies and has prevented individuals and institutions from sharing critical information and learning from it. Since financial crimes are mercurial, constantly evolving and generally increasing in magnitude, so the need to synthesize procedures and stand-alone technologies to create an enterprise solution approach must become an imperative. In addition mounting compliance and regulatory pressures represent significant challenges that financial institutions must take into account to avoid scrutiny, prosecution, penalties and loss of reputation when financial crimes occur. As the regulatory scrutiny and the extent of financial crime has grown to include multiple industries, businesses, products, and geographies, a large number of organizations have failed to recognize the threat and adapt their approach to address this bigger picture. Essentially, they have failed to see the forest of financial crimes for each incident and each report filed.

So, is there a definitive answer to this challenge?

A panoptic view

Financial institutions need to take a panoptic approach to combating financial crime. This involves approaching financial crimes from a holistic paradigm rather than from an incident-based mindset.

The first step toward a ‘panoptic’, or all-inclusive, strategy to fighting financial crime requires a shift to a proactive, rather than a reactive approach. Financial institutions, historically, have established policies, procedures and technologies as a reaction to financial crimes and regulatory mandates as opposed to forward-thinking and anticipatory steps. Overall, this has created and sustained an environment in which the perpetrators of financial crime have been one step ahead of the solution with financial institutions constantly struggling to play catch up. This must be changed by re-examining and modifying the existing architecture and substituting it with streamlined policies and procedures.

Assessment of what is

The second step is a thorough assessment of the solutions and tools presently in place; their purpose, their ability to serve that purpose, the time it takes them to do so, what are the results and are they satisfactory? This process must begin with an evaluation of existing policies and procedures within an organization (resources such as personnel, policies, education, training, information technology) and work outward. Effectively an assessment of the basic needs of an organization versus the threats critical in establishing a solid methodology to combating financial crimes and, equally importantly, meeting the regulatory demands.

Integrated technologies

Integrated technologies are critical to a panoptic approach to financial crimes. Investment in tools that integrate systems and streamline the manner in which an organization deals with financial crimes must be considered an imperative. Whilst the temptation among a large number of financial institutions to adopt an in-house approach to integrated technologies and leverage internal resources is big, the disadvantages of ‘building’ such a system are greater over the longer term. Any financial institution’s criteria with regard to a ‘build or buy’ decision of such technology much consider speed-to-market, ability to take advantage of the latest technologies, resource constraints, availability of domain expertise and total cost of ownership.

Creation and sharing of industry best practices

Financial institutions must take a lead in establishing best practices whether it is for regulatory compliance or effective case management of financial crimes. More importantly, they must begin to share the lessons learned to create an industry-wide understanding of and solutions for issues arising from financial crimes. Until there are some basic, industry best practices, financial institutions will continually fight financial crimes single-handedly and in isolation. Although, no two financial institutions are alike in how they operate or perceive risks and combat financial crimes, the threats, risks and the crimes are all the same. Financial institutions must begin to share knowledge, experiences and methodologies in order to gain a panoptic, big-picture, perspective of financial crimes and proactively combat them.

Nicholas Nishesh and Jonathan Clarke represent Syfact