Organizations focus on fine-tuning systems to ensure compliance while reducing risk

66% of financial institutions face the significant challenge of achieving low false positive rates, putting unnecessary burden on their compliance departments and creating inefficiencies in their financial crime screening processes, according to Accuity and Chartis Research.

Which of the following approaches does your organization use in compliance screening?

Source: Chartis Research

The study, ‘Benchmarking and Trends in Financial Crime Compliance Screening,’ found that financial institutions unanimously agreed that improving accuracy outweighed speed as transaction volumes keep increasing (almost 20% report screening over one million individual transactions each month) along with the high price of regulatory fines.

This has pushed organizations to focus more on fine-tuning their systems to better guarantee compliance while reducing exposure to risk.

While the pace of regulatory change has slowed, the stakes for financial institutions are higher than ever. The past year has seen some of the largest ever fines for violating sanctions and gaps in the compliance screening process.

Only two thirds of the way through 2019, fines issued by the US Treasury’s Office of Foreign Assets Control (OFAC) are already higher than any year prior, at almost $1.3 billion.

Sidhartha Dash, Research Director at Chartis, said: “Being accurate and transparent is paramount as pressure mounts, both from external regulators and internal policies and processes.

“It’s clear from the research that financial institutions must develop a clear strategy for their financial crime screening that leverages best of breed technology to boost the value of their systems and reduce false positives, thereby improving operational efficiency and reducing costs.”

The report confirms that financial institutions that take advantage of technology advances – such as cloud technology, shared services, third party data provisions, AI and robotic process automation – will operate at maximum efficiency and better identify possible matches against sanctions and politically exposed persons (PEP) lists.

According to the respondents in the report, sanctions (89%) and PEP (82%) screening were the most cited uses, and “the areas with the most intense regulatory oversight and most severe punishments.”

David Loeser, Senior Director of Product Strategy at Accuity, said: “With the increase of instant and faster payments, the volume of transactions needing to be screened is rising significantly.

“The survey confirms accuracy remains pivotal to avoiding millions or even billions of dollars in fines; however, raising the bar on speed will be the competitive advantage that enables forward-thinking global firms to stay ahead of the market.

“The only way for institutions to reduce their exposure to risk, while meeting more demanding service levels, is to put in place a comprehensive, best-of-breed compliance solution that is effective, efficient, and explainable to regulators.”

Which of the following statements do you most agree with regarding the screening landscape?

Source: Chartis Research

Additional findings in the report included:

• False positives remain high. More than a third of respondents only identify one true positive match for every 100 entities flagged.
• Operational and resources constraints (33%) are the most common challenges in improving compliance organizations, with technology and data constraints cited second (29.5%).
• Over half the financial institutions surveyed (54%) claim to screen all domestic transactions, with a further 34% screening domestic transfers over a given threshold.
• Confidence is high (43%) that technological advances will continue to outpace industry regulations.
• Uptick in advanced analytics and AI is likely to be slower because of the difficulty of explaining their results to regulators.
• An improvement in accurate financial crime screening will also provide benefits in KYC, credit risk and customer lifecycle management.

Chartis Research surveyed 109 senior compliance professionals from financial institutions around the globe, asking them to describe the current state of the market for financial crime screening solutions.