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Risk Technology: Let the CAT out of the bag

Today's banks are facing a common challenge across the globe: mounting technology costs and increasing compliance requirements. New organizations are surfacing at every nook and corner to disrupt normal life through violence, and are being funded heavily to conduct global attacks. Due to the way the banks have operated so far - coupled with the macro conditions globally - a need has arisen for tighter controls and more stringent compliance requirements. Everyone talks about the cost aspect all the time; this blog will focus on the transformation approach banks need to take in enterprise risk technology. A cross-talk within LOBs would definitely be successful in catching the big fish that currently operate outside of the radar.

The need to focus on risk management and better compliance requirements, arises from the growing fraudulent activities the world over, and the demand for illegal fund placement to feed the current crop of terror networks. The need of the hour for all financial institutions is to, at the least, talk internally across the boundaries of LoBs. Let each of them take their CATs out, that is, Customer information, Account information, and Transaction information. Bring these three attributes centrally and imagine the possibilities of obtaining Predictive, Behavioral, and Business analytics which can out-pattern any application in the world. Let's take a look at the individual components of this CAT -

1. Customer information: Each LoB holds its own System of Records to capture customer information, and their core attributes like party key, bank-assigned unique numbers, name, address, and home and work details. Most of the times, the LoBs do not talk to each other and tend to hold back this information.

2. Account information: Each LoB holds some specific account attributes, like associated owners, which are never cross-reconciled across the LoBs. This leads to missed accounts when trying to sieve them through various rule based scanners.

3. Transaction information: This is the most critical of the three and perhaps the most immature part across organizations. The fraudulent minds take advantage of this vulnerability within the bank technologies and are able to successfully siphon off the money, pass through undetected during scanning, or are able to place and direct the illegitimate funds to feed the weeds. Not even the big banks of the world have a mature LoB-wide transaction scanning with reasonable SLAs to take informed decisions. By the time something fishy is identified, they have missed the bus by a long while.

Like all problems, these security issues have a solution too; the need of the hour is for all these CATs to be out on a single hub, reconciled and analyzed, and then discussed upon as a first layer of security checks. This hub should handle the billions of daily transactions (the average volume for big banks ranges between 40-50 billion transactions, everyday) of various forms from various LoBs, reconcile the involved parties and accounts across transactions in order to get the complete picture, and then assign them risk ratings in order to get a clear classification of High-Medium-Low Risk customers, and their relationships with the bank.

Coupled with Predictive and Business analytics, this can work wonders and truly help investigation teams - within and outside the banks - tighten the fund movements, and curb the illegitimate fund placements and fraudulent activities.

This system of LoBs letting their CATs out of their bags, with a clear understanding and good coordination between them, will go a long way in curbing funds to undesirables the world over. However, most of the banks and LoBs currently operate in silos; which results in divided information with no real connection to establish a concrete risk profile. Many transactions pass under the radar and end up funding wrongdoers across the world. Only a well-connected kitty party of these CATs, across LoBs, will mitigate the risk these financial institutions run, at present, by failing to catch the suspicious transactions and parties, and paying penalties for their failures. More than improving the loss liabilities of banks, this system would directly impact the moral system of the people by cutting the financial pipeline to the malignant networks and rings around the world. 

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Nikhil Mittal

Nikhil Mittal

Financial Crimes Consultant

Wells Fargo

Member since

20 Apr



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