Expert corner
Oct 7, 2008
Enterprise-wide financial crime management pays off
RICH REWARDS
Enterprise-wide financial crime management pays off
By NORKOM
In recent years, financial services organisations have adopted a risk-based, enterprise-wide approach to financial crime management. New research from Norkom Technologies proves they’re reaping benefits by doing so, with improved crime fighting performance and reduced operational costs. It is, says Norkom’s Managing Director of Global Solutions, David Dixon, all the vindication the industry needs for the development of global capabilities.
Proof
The shift towards enterprise-wide financial crime management has been characterised in by the adoption of consolidating technologies which effectively break down technology silos. By drawing information from an organisation’s disparate detection systems these new technologies allow businesses to reap significant financial benefits by rationalising their investigation management.
In the past year, the number of organisations using a single consolidating technology across both their AML and fraud operations has more than doubled, from 13% to 32%. An additional 11% have consolidated across either their AML or fraud technologies. Almost as many again (31%) plan to follow suit within the next two years. Sixty four percent of those that have consolidated say they’ve experienced operating cost reductions of up to 30%. At the same time, 76% report that their ability to detect crime has increased by up to 50%; a further 16% has seen even greater improvement. The adoption of a risk-based approach is delivering similar benefits. Over a third (34%) report operating cost reductions of up to 30%. Eighty six percent say they’ve improved their fraud prevention capability, with 43% quantifying that improvement in terms of a reduction in fraud losses of up to 50%.
Consolidation – a continuing trend
There can be no question that the sub-prime crisis and the ensuing credit crunch have sharpened organisations’ appetite for cost reduction and heightened their awareness of the need for a comprehensive risk management approach. It is interesting to note that, while the number of organisations that have brought AML and fraud into a single reporting line has remained static at 53%, consolidation is actually taking place at a higher level. More than half (56%) of respondents tell us that both fraud and AML are now viewed as part of an overall operational risk challenge and are managed under a single operational risk management governance model.
It is clear that the focus moving forward will be on the development of strategic plans to improve financial crime capability. In the past most organisations have pursued a piecemeal approach, responding to urgent needs and regulatory demands without a clearly articulated strategy. This is changing fast. As the industry resigns itself both to the progressive nature of regulation and the growing threat of fraud they are developing long term approaches. Fifty percent of respondents have now articulated a three-to-five year strategic plan to develop their financial crime fighting capability and, in 79% of cases, those plans embrace the entire enterprise – all geographies and all business units. Twenty two percent will develop such plans over the next 12 to 24 months.
The central role played by technology in the crime fighting future is acknowledged by the fact that more than half (53%) of these long term plans are complemented by multi-year technology strategies. Clearly organisations will rely on technology to unlock the benefits of consolidation.
Focus on fraud
As fraud continues to grow, we’ve observed the adoption of a new measure for fraud detection effectiveness. Twenty nine percent of respondents actively monitor the amount of fraud successfully detected and prevented against the total amount of fraud reported to arrive at a ‘percentage of fraud detected’ figure. By 2010 60% of organisations will use this measure.
The success of many operations seems modest at the moment. Thirty nine percent of those using the measure report levels of fraud detected below 20%. The level of success organisations can expect to achieve will depend on the sophistication of the analytical tools used in the investigatory process. While standard analytical procedures will typically deliver results in the 20% region, the introduction of neural networks or managed optimisation capabilities can double that figure to 40%.
The additional ability to use further analytics and integrated case management tools in order to look beyond single incidents and identify ‘common points of compromise’ - vulnerabilities from which multiple crimes can stem - can drive fraud prevention results into the high 80’s. One final observation: The focus on fraud is likely to intensify given as regulatory scrutiny increases. Eighty four percent of respondents note increased regulatory interest in their anti-fraud activities. While there is no sign yet of AML style regulation being introduced to fraud environments, fraud managers may, in the not too distant future, have even more good reason to investigate the benefits that AML disciplines. Forty eight percent say they are using them already, 34% that they plan to do so. It seems that the dividing line between AML compliance and fraud management is becoming ever more indistinct.
Norkom is a leading provider of financial crime solutions to the global financial services industry. Contact Norkom by emailing marketing@norkom.com or go to www.norkom.com
