Research found that UK banks are spending almost GBP 30 billion on complying with anti-money laundering (AML) regulation, with three-quarters of budgets being spent on people and only a quarter on technology.
Our landmark 2021 Cutting the Costs of AML Compliance study revealed that the UK financial services sector’s response to financial crime compliance is significantly more labour-intensive than technology-driven. It showed that banks spend three quarters of their compliance budgets on people and only a quarter on technology, suggesting significant gains in both efficiency and cost effectiveness are readily achievable.
One year on, our new Tech Blockers report seeks to explore the anatomy of this ‘labour versus tech’ split in more detail – what are the underlying drivers for this reliance on people?; is the slow pace of tech adoption down to a lack of belief in its potential for return on investment?; are competing priorities within organisations getting in the way?; what other factors are at play?
On average, a fifth of a bank’s workforce is focused on financial crime, and as the size of a bank grows, the balance towards financial crime compliance will grow as well.
What’s for certain is a need to better balance technology and skilled employees, particularly as financial crime becomes increasingly sophisticated, and humans are needed to focus on the difficult investigations. So why are businesses not making sufficient use of technology to tackle financial crime effectively? Is it time to redress the balance and understand how orchestration and automation can help to meet the demands of customers and business strategies? Our Tech Blockers report asked 15 CXOs from leading UK financial institutions to find out.
Over the next five years, most financial institutions expect to increase automation, including sophisticated AI to improve the effectiveness of their financial crime detection and prevention.
However, standing in the way of this is quality data. Younger challenger banks and fintechs don’t have access to enough, while bigger, older institutions have plenty, but their data is siloed across legacy systems and infrastructures that don’t speak to one another. Even when it does, a golden, single customer view remains elusive. Updating legacy IT systems is expensive, time-consuming, and risks potential service disruption – and the larger the institution, the harder it gets.
The Chief Operating Officer of a retail bank we spoke to admitted to having multiple platforms for different processes: onboarding on one platform, transaction monitoring on another, and adverse information checks on another. Overall, we found that many compliance teams are looking to improve their financial crime workflows, with most using between five and ten different data sources to assess risk at different points throughout the customer journey.
As a priority, they need to centralise everything on one platform – an orchestration platform on a single API. This would in turn reduce the number of people required to manually manage the integration and allow them to conduct higher risk investigations — making the right risk decisions supported by technology.
As leaders look for ways to achieve greater efficiency whilst maintaining productivity, we hope to see a major shift towards greater use of technology in financial crime compliance. Automation supports efficiency, reducing future recruitment costs – and the challenge of attrition – decreasing the time it takes to uncover faults and their severity, and ensuring the risk of manual errors is kept to a minimum.
Crucially, the goal amongst leaders is achieving a more effective balance, not replacing people with technology. Automation presents opportunities to play to the strengths of both – achieving time and cost savings that allow people to focus on cognitive investigations that best utilise their skills: developing tools, rules, policy alignment, threshold setting and scanning the environment for threats.
Revealingly, our interviews show that much of the investment in people is in fact related to technology: helping people to understand the challenges they’re trying to solve. So, the foundations are already there.
Our Tech Blockers report presents an enlightening picture of a sector that is fully invested in the need for automation, integration, and full digital transformation – even if in principle, rather than fiscally, for the time being. The message is overwhelmingly clear: no one expects AI and machine learning to take the mantle of compliance and fraud investigations fully – good news for the thousands employed in the sector – but moving closer to towards an equilibrium of automation for repetitive, routine tasks and manual investigation for the tasks that require cognitive reasoning is the logical way for financial services leaders to future-proof their businesses.
Edward has nearly two decades of experience in financial crime roles across a broad range of sectors. Edward has worked as a Future Financial Crime Risk Manager for a tier 1 bank, helping shape the future systems technology. Edward now leads a team working with UK&I banking institutions to solve fraud, risk, and compliance challenges.
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