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May 17, 2022

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De-risking Financial Crime in the Post Pandemic Era

Digitization of the financial sector has been accelerated by the Covid-19 pandemic. Intensifying regulatory scrutiny, and the ever-increasing sophistication of criminals and technology, are prompting banks across the globe (including Sub-Saharan Africa) to invest in, and enhance, existing compliance and financial crime prevention capabilities.

In observing the changing landscape of banking across the African continent, banks should fearlessly consider embracing digital transformation in the Anti-Money Laundering (AML)/Terror Finance (TF) space to advance their competitive advantage. Now more than ever, investing in new technology such as financial technology (FinTech) and regulatory technology (RegTech) solutions, or building digital capability in-house, have the potential to make AML/TF measures more effective. Technology can automate many compliance-related processes with several solutions widely available to create opportunities for business benefit, aside from improving compliance. Technology increases efficiency and is generally seen to be more cost effective in managing compliance risk, however the human skillset remains very important within the risk and compliance disciplines and should not be overlooked. In this digital era; automation does not eliminate the need for human evaluation and judgment, particularly in the investigation sphere, it simply quickens the the ability to assess risk on a more efficient basis.

Compliance cannot be devolved to technology as a responsibility; competent compliance officers with a sound understanding of AML/TF regulations, and awareness of the ever-changing methods of criminals, are critical in ensuring banks design and implement robust AML/TF compliance programmes. The fraud and cyber threat landscape continues to grow and evolve, and it is important for banks to prioritize investment in impenetrable (as close thereto) fraud and cyber security solutions, ensuring systems remain stable and data protected. These interventions will ensure banks remain competitive and future ready.

Many banks still have sub-optimal onboarding and Know Your Customer (KYC) processes, with over reliance on manual processes, or outdated transaction monitoring systems. For some, outdated IT systems and legacy screening systems lack the flexibility and agility to quickly respond to a crisis; the lack of strong data management practices to ensure effective use of technology solutions for ongoing monitoring is a further challenge. These banks struggle to maintain pace with increasing demands on compliance, which can result in severe financial and regulatory challenges if not addressed.

Similarly, traditional regulatory rule-based alert systems fall short of contemporary requirements as they address only a known set of scenarios; high numbers of false positives (and negatives) can result in banks missing the truly suspicious incidents, leading to revenue loss, risk of heavy regulatory penalties for non-compliance, and reputational risk. With the customer onboarding process becoming evermore complex, and additional AML/TF checks required on a frequent basis, many banks are recognizing the potential of adopting digital solutions using Artificial Intelligence (AI) and machine learning to enhance customer onboarding and suspicious transaction monitoring. AI technology being dynamic by nature, can identify connections and patterns that are too complex to be picked up by traditional rule-based monitoring, or the human eye. Technology providing automated on-boarding and remote biometric digital authentication have been adopted by innovative banks as a competitive advantage, with the customer onboarding process being faster, where errors are reduced and data being more secure. Similarly, fraud detection can also benefit from the incorporation of AI capability.

In addition to appropriate compliance program elements and technology, the establishment of a strong AML risk culture is key in a banks’ compliance and financial crime prevention program. Banks must work towards embedding a strong “culture of compliance”, which guides the behavior of all staff with the organisation. A strong compliance culture will aid in identifying gaps in the overall compliance program, leading to more efficient AML/TF practices. Further, it is of upmost importance that boards and bank leadership are absolutely invested in th organizations’ compliance programmes and digital journey; leadership support should be visibly championed throughout the organisation. A shift in talent requirements will require banks to invest in its people, where the re-engineering of traditional resource models may be required. Banks will need to identify the knowledge, skills and experience required, and bridge the skill gaps through technical training of employees, aimed at developing the necessary skills, and where not feasible, banks should look to attracting appropriately qualified specialists.

In conclusion, the ability to effect compliance by means of a technology based/digital approach is recognized as a key enabler to increasing financial inclusion across Sub-Saharan Africa, making it easier for individuals to access financial services. Banks are thus encouraged to embrace change through digital transformation, as an essential lever within their compliance evolution. Albeit that change is often the only constant, banks navigating the evolving regulatory and compliance landscape should reflect on their existing position, and develop a clear vision, strategy and technology roadmap enabling the organisation to improve its’ de-risking capabilities, working toward a sound and future proof compliance and financial crime prevention capability.

Compiled by Carla Bester, Head of Risk and Compliance

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