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Anti-Money Laundering – A Business Process Ready for Digitisation

Wayne Johnson


In a blow to money laundering regulations, just this month it was revealed that UK banks have unwittingly played their part in a $20 billion global money laundering scheme, potentially involving almost 20 UK and foreign banks based in the UK. It is an indictment of how well financial services are operating Customer Due Diligence on clients and customers that these global money laundering operations are allowed to operate with apparent impunity.

The CDD failings of the banks suggest that the systems and processes that they are currently utilising are not fit for purpose. Manual onboarding is expensive and time consuming in terms of human input and for the same reason, can result in human error. As well as ensuring that financial services Know Your Customer (KYC) policies have been enacted exactly as they should, digitising the process comes with a raft of benefits.

McKinsey Global Institute have suggested that industries displaying high digital intensity benefit from growth in profits and wages. Yet the same report estimates that Europe has captured just 12 percent of digitisation’s potential and that digitisation could add trillions in economic growth in less than a decade.

The UK leads Europe, having already captured 17 percent of digitisation’s potential. Financial services, a major contributor to the UK’s economy as measured in gross value added and employment, is identified by McKinsey as a sector that scores highly in terms of its digitisation. However, the sector could do more and accrue greater benefits by digitising business processes. The report makes a number of recommendations on how companies can capture some of the enormous value available to them, including:

● digitise internal operations;
● be continuously vigilant to spot the new technologies, startups, and disruptions brewing on the horizon;
● use the latest digital tools to improve efficiency;
● digitise end-to-end processes to reduce costs and optimise resources;
● put digital tools in the hands of employees to ramp up productivity.

Another report from CBI/PwC reports a sharp drop in optimism with banks’ costs increasing and employment falling sharply, while competition and regulation remain the largest barriers to their growth in 2017. Reinforcing sentiments voiced by McKinsey, the survey notes that Brexit offers an opportunity to accelerate transformational change including the deployment of FinTech solutions.

One area of business operations in need of transformation and with potential to capture value from digitisation is compliance with anti-money laundering regulations. In response to increasing regulatory oversight and supervision many firms have created processes that combine point computer systems coupled by manual work of reviewing and duplicating information, and because these are not end-to-end processes they remain fragmented and inefficient. This inefficiency is evidenced by results of a survey of 772 financial institutions and 822 corporates conducted by Thomson Reuters which found “Overall the average time to onboard a client was reported to be 26 days. This figure had increased by 6 days in the 12 months preceding the survey and respondents from both FIs and corporates expect this to increase by a further 6 days over the coming 12 months”.

Experience with such poorly designed processes is that they are subject to operator error that create wasteful cycles of re-work and the need for high levels of supervision. Thomson Reuters’ survey supports this view: “… on average a client is contacted 4 to 5 times to obtain the necessary documentation. The reasons for this include inconsistency with respect to requests; requests for different documents; different parties making contact; and a lack of any standard in requirements”. This despite the fact that many of the documents required in customer due diligence and enhanced due diligence required by anti-money laundering regulations are available as streams of digital content.

Know Your Customer processes made necessary by anti-money laundering regulations are just the type of internal operations identified by McKinsey as opportunities for digitisation and automation. Our customers’ experiences confirm the approach: by redesigning Know Your Customer as end-to-end processes and putting the latest digital tools in the hands of employees, their due diligence analysts become on average five times more productive than when they relied on older, fragmented and manual processes.

This approach of identifying poorly designed processes and automating them to take advantage of digitised information is how much of the benefit identified by McKinsey will be realised.

Wayne Johnson

Founder & CEO - Encompass Corporation

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