In today’s fast-paced world, financial institutions (FIs) must also operate in a rapid and nimble fashion, especially as payments that take 24 hours or more for delivery to the end beneficiary hinder the speed of business. A lack of transparency around the location and status of payments can also make resolving queries more challenging and time consuming.

With nearly 10% of cross-border payments held for additional compliance checks, professionals in the space are continuing to find new ways to increase efficiency in order to meet the challenges of supporting compliance in a real-time payments landscape.

Ahead of a lunchtime roundtable on the first day of Sibos that will focus on these challenges, Finextra spoke to Heather Lee, financial crime compliance - sanctions strategy at Swift, about how the community can keep pace by investing in straight-through processing and improving data quality.

The importance of instant

Lee began by noting that there has been increased innovation in the domestic payments space with the continued growth of real-time systems such as those seen in the UK, Australia and Singapore. This is a result of changing customer expectations in a 24/7 world. The continued investment in real-time domestic payment systems has naturally led to the same need for speed and transparency in the cross-border payments space.

“This changing dynamic in terms of speed has resulted in a new opportunity for the compliance process to adjust to meet these expectations. With around 10% of cross-border payments being stopped for additional checks, compliance teams must be brought along on the journey of innovation in the payments space as well,” Lee says. “This is where we have exciting opportunities to re-examine the entire compliance lifecycle and think about new ways of
addressing challenges.”

“For example, many banks are joining together to form utilities to solve this issue. Often an originator and beneficiary of a payment have different bank accounts in different countries. In order to really address financial crime, banks must collaborate and overcome industry silos to be effective,” Lee illustrated.

Investing in straight-through-processing

To resolve the issue of a small, but persistent number of cross-border payments being stopped mid-transaction, Lee explains that investment is being directed to enhance straight-through-processing (STP). This includes advanced technology as well as new ways to enhance compliance processes to reduce friction.

For example, this may mean ‘front-loading’ the compliance process where possible, to check a transaction prior to sending to help avoid errors, such as missing or incomplete beneficiary data, at the start and prevent additional flags later on.

When beneficiary information can be validated ahead of time, it can have a knock-on effect for compliance, meaning that STP will improve as fewer banks have to carry out additional checks throughout the lifecycle of the payment.

“For example, in sanctions screening, each institution is screening the transaction at every point in the payment chain as it moves from intermediary bank to intermediary bank. This is because they have an obligation to do so, but of course, that means that each time that transaction is looked at there is a greater chance it will be delayed. At each bank, the team looking at the alerts may be checking the same errors over and over again.” She says.

Lee adds that it has been reported that, “around 99.5% of the alerts created by screening solutions are false positives, which highlights the inefficiencies of these systems.”

Lee explains, “Data not being present is one issue that must be tackled, but the data quality is another issue as well. For example, if you have poorly formatted data, it can increase the number of false positives that are associated with screening that payment for compliance reasons.”

The drive to improve data quality

Data quality is imperative for STP in payments. If key data is incomplete or incorrectly formatted, it can lead to a payment being investigated and a request for information (RFI) being issued. This increases the cost in processing that payment and can also create delays along the way.

More than simply improving quality of data for today’s payments, there also must be emphasis on the future in which artificial intelligence and machine learning will play a greater role in compliance.

For this reason, data must also be in a format that can be leveraged for artificial intelligence or machine learning detection in order to make the most of the advanced data analytics techniques that we have today, as well as those that will be developed in the future.

Focusing on messaging, Lee posits that Swift is working with the community to focus on the importance of early adoption of ISO 20022. Lee emphasises, “It’s crucial that the industry adopts messaging formats that contain richer, structured data that can provide more complete information. As the payments industry continues to move to ISO 20022, it will remedy many of the pain points that we face today throughout the compliance lifecycle.”