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TARGETING THE CREVICES: EFFECTIVE FINANCIAL CRIME PREVENTION

CustomerXPs

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Banks grapple with the increasingly sophisticated

means and methods of fraudsters who always

seem a step ahead of bank’s fraud prevention

apparatus. Be it cross channel or cross function or

cross geography or mostly, in cohorts with bank

employees, the fraudster is adept at finding the

bank’s Achilles heel. Banks only have piece meal

solutions with single product focus; that have left

crevices wide enough for malicious fraudsters to

exploit.

To add to the Financial Crime head’s woes is the

bad political weather in the Middle East which has

led to creating several PEPs and immense scrutiny

around Anti Money Laundering.

According to KPMG’s Global Anti Money

Laundering report, sanctions and transaction

monitoring is still very nascent and banks are not

satisfied with their own capabilities, especially

transaction monitoring.

Banks have watertight KYC norms while on-

boarding customers but seldom monitor the

customer on an on-going basis. The good news is

that regulations like FATCA are ensuring banks

take a good look at their KYC process and

continuously update their customer information.

Finally the most important aspect about Fraud

and AML lies not only in detection of aberrant

patterns but importantly in attempting to prevent

malicious transactions from being executed.

This article aims to provide a point of view on

some of the things banks can do to plug some of

the gaps that exist in most financial crime

management infrastructure. This point of view will

cover aspects of what to monitor, how to monitor

and most importantly when to monitor to help

banks not just detect potential frauds but most

importantly prevent frauds from happening.

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USER LEVEL MONITORING

Monitor activities of all users including inquiries, pattern of activity, etc.

ACCOUNT LEVEL MONITORING

Monitoring activities at an account level

BRANCH LEVEL MONITORING

Monitoring activities at branch level- which includes activities done collective by all users

MULTI CHANNEL MONITORING & CROSS PRODUCT MONITORING

Monitor ATM, Internet banking and core system working together as one

CUSTOMER LEVEL MONITORING

Monitor activities at customer-level which includes all his account/ ATM/ Internet and also

at individual account level

PIECING THE CRIME TOGETHER: WHAT TO MONITOR?

Most people would be surprised when told that a large part of frauds are done in cahoots with bank’s

internal employees. A rather innocuous transaction like ordering a debit card by bank personnel may be part

of a much larger fraud scheme. Therefore it is essential to establish what needs to tracked and monitored by

a bank to ensure that no cracks exist.

A REASONABLY ASSURED MONITORING PLATFORM SHOULD MEASURE THE FOLLOWING:

It is essential to not just monitor financial activity such as movement of funds but it’s equally essential to

monitor non-financial activity such as spurious inquiries, high velocity of failed attempts and most

importantly treat lack of an expected event as an aberrant pattern.

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Core Banking Solution

Enterprise Payment Hub

Payment Warehouse

MDM Island

APPROACHES TO MONITOR

The “How” of monitoring is often a tricky question and in my view the most challenging part of monitoring is

to draw information from a holistic view of data. A bank’s monitoring as well as analytics is only as strong as

the data it acts upon.

Over the last few years the industry has seen many “Single Customer View” solutions to tackle the problem

of providing a holistic view of data. Some contemporary solutions include...

What

Next?

Enterprise payment hub is an

exciting new approach where all

payment information comes

together and lends effectively for

monitoring and analytics.

Arguably the most effective form of

data aggregation as it provides

multi product and multi relationship

transaction information in one go

MDM Islands provide all customer

data in one place albeit in a bit of

a random fashion – It’s a start but

just only!

Payment warehouses, by virtue of

being built like a data warehouse,

are most conducive to reporting

and end of day analytics and not

just in time monitoring.

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THE CRUX OF THE MATTER: WHEN TO

MONITOR

Financial Crime has traditionally been detected

through an array of post facto analysis software.

While these systems are immensely effective in all

the regulatory reporting; the one thing they

fundamentally lack is to influence an outcome at

point of interaction. What use would ATM fraud

detection software be if a fraudster has already

withdrawn a large sum of money from the

account and is now untraceable?

The new age fraud monitoring systems go way

beyond fraud detection, they essentially provide

fraud prevention and transaction decline

solutions. For this to happen, fraud solutions need

to act in Absolute Real Time and any post

Financial Crime has traditionally been detected

through an array of post facto analysis facto

detection is going to be counterproductive.

The resistance to real time comes from the

perception of performance issues real-time

solutions carry with them. However recent

technologies like big data computing and in-

memory computing have helped building a strong

case for Real Time computing.

GLOSSARY

PEP – Politically exposed persons are individuals

who are or have been entrusted with prominent

public functions in a foreign country, e.g., Heads

of States or of Governments, senior politicians,

senior government/judicial/military officers,

senior executives of state-owned corporations,

important political party officials, etc. Banks

should gather sufficient information on any

person/customer of this category intending to

establish a relationship and check all the

information available on the person in the public

domain. Banks should verify the identity of the

person and seek information about the sources of

funds before accepting the PEP as a customer. The

decision to open an account for PEP should be

taken at a senior level which should be clearly

spelt out in Customer Acceptance policy. Banks

should also subject such accounts to enhanced

monitoring on an on-going basis. The above

norms may also be applied to the accounts of the

family members or close relatives of PEPs.

FATCA – Foreign Account Tax Compliant Act is a

compliance act is a compliance act enacted by the

IRS that mandates foreign national banks outside

the US to scrutinize and report customers of US

origin to the IRS to ensure that all such customers

are duly taxed by the IRS.

MDM – Master Data Management in computing

comprises a set of processes and tools that

consistently defines and manages the non-

transactional data entities of an organization

(which may include reference data). MDM has the

objective of providing processes for collecting,

aggregating, matching, consolidating, quality-

assuring, persisting and distributing such data

throughout an organization to ensure consistency

and control in the ongoing maintenance and

application use of this information.

www.customerxps.com | clari5@customerxps.com | +91-80-3221-8309

Conclusion

Banks world over are waking up to the reality of Effective Financial Crime Management. Most banks are not earning as much

revenue as in the early part of the millennium and the last thing they want to do is lose money to the regulators. Effective

monitoring is about getting the “What to Monitor”, “How to Monitor” and “When to monitor” absolutely right. Any slack in the

above three will lead to crevices that will be wilfully exploited by the fraudsters and hackers without any compunction.

Also, while it is important to detect and prevent frauds from occurring, it is important to acknowledge that fraud detection can

sometimes be an inaccurate science that has to be garnished with intuition and simulated intelligence to try and make

detection watertight. To this extent solutions have to not just read the obvious but also interpret the unsaid…till such time

there will continue to be crevices!

www.customerxps.com | clari5@customerxps.com | +91-80-3221-8309

About Us

CustomerXPs, a Red Herring Asia Top 100 winner, is a Software

product Company that creates real-time, intelligent products that

empower Banking, Retail and Telecom Enterprises with instant

insights enabling influenced outcomes of deeper customer

engagement and fraud-free transactions. With a vision to provide

ammunition to its clients to delight their customers even before

they could articulate their needs/wants, CustomerXPs software

identifies and solves, in real-time, complex problems in the areas of

customer experience management, contextual right-sell, fraud

monitoring, compliance, accurately predicting risk and automating

targeted treatments.

Ratnesh Pandey is the Head of Marketing at CustomerXPs. He can be reached at

ratnesh.pandey@customerxps.com. For more information on Enterprise Fraud

Management and Financial Crime Solutions, please write to us at

clari5@customerxps.com or visit us at www.customerxps.com

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