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#IWD2023: Women in Financial Crime; and why we must now operate in the age of continuous approach to KYC enabled by widely available tools

By<strong> Federica Taccogna</strong>
By Federica Taccogna

Managing Director
Interpath Advisory

WATCHING hundreds of people gather – virtually or in person – to discuss financial crime never ceases to amaze me.

So it was such an honour and privilege for me to recently chair the incredible ‘Women in Financial Crime’ Summit. Indeed some key takeaways and reflections on that day, attended by hundreds of like-minded AFC professionals globally, that stand out for me.

Financial crime mutates, evolves, adapts and, because of that, the response we provide to it – as individuals, institutions, governments, and societies – must constantly evolve, too. Debate and education are what fuels this evolution and makes us stronger.

In a way, change was one of the unspoken themes of our conversation at the Summit.

‘Part of the answer is because of fundamentally obsolete approaches to due diligence and KYC’

The tools that we employ in the fight against financial crime are changing, for example. The term AI entered common usage for most of us and it is impossible not to consider the impact that it might have on the way we prevent and detect financial crime, as its implementation and usage become common too.

SPEAKERS: The Women in FinCrime Summit heard from (l to r) Toni Gillich, Assistant Director, US GAO; Jackie King, Executive Director, Ibec Global; Dr Shlomit Wagman, Harvard and formerly DG, AML Authority, Israel; and Karyn Kenny, Prosecutor and Metaverse SME, US DOJ.

Amongst other applications, for example, it can be deployed in transaction monitoring and assist in focussing attention and efforts where needed the most, potentially reducing false positives (or, even better, improving the overall quality of alerts) and recalibrating rules and scenarios.

Adopting AI does not come without challenges, though.

Even in today’s world of relatively well-established technology, institutions struggle with the technical solutions that they have in place to monitor transactions for unusual behaviour, because of a poor understanding of the rule and parameters in them.

Very often, for example, poor customer segmentation undermines the validity of entire rulesets, or entire scenarios are shut down because of a firm’s inability to manage the alerts they generate.

If this is such a regular occurrence with familiar technology, it is possible to imagine even greater potential for error with an AI-powered application.

‘Deploying AI to prevent financial crime, therefore, does not mean simply buying a tool, but understanding how ‘the machine’ will behave, and overseeing its potential biases’

Deploying AI to prevent financial crime, therefore, does not mean simply buying a tool, but understanding how ‘the machine’ will behave, and overseeing its potential biases. This, in turn, will require robust governance and investment in a unique combination of (financial crime and technology) skills.

Change is also still much-needed in the way we manage our process of knowing our clients.

It is impossible not to wonder why institutions are spending so much time and effort on the fight against financial crime, and still so much of it happens. Part of the answer to this question is because of fundamentally obsolete approaches to due diligence and KYC.

Institutions historically have treated, and continue to treat, KYC as a point-in-time event. Something done at onboarding stage and then forgotten until the time of the next review.

The rules that dictate timing of that next review are quite opaque too. For some it is one, two and three years for, respectively, low, medium and high risk clients. But what if that categorisation is wrong? After all, customers evolve… What if we have missed the signs of this evolution (and this happens more often than we like to admit)?

‘Perhaps, a continuous approach to KYC, enabled by the tools that are now widely available is a better one’

Yes, this traditional approach is a form of the much-supported risk-based approach but perhaps not the most intelligent one. It generates a cottage industry of review work, and does not assess risk in a meaningful timeframe.

Perhaps, a continuous approach to KYC, enabled by the tools that are now widely available is a better one. This one too, does not come without challenge. Numerous, and often legacy systems, poor data quality, and the need to rethink the end-to-end framework of controls are all potential hurdles (for larger, ‘historic’ institutions more than for smaller, leaner, new ones). But I think change in this direction is inevitable.

Finally, change is a room (virtual or otherwise) full of diverse individuals.

The degree to which we are able to protect our systems from financial crime is the product of the quality of our decisions. And decisions are much better when informed by a variety of thoughts and perspectives. The fact that, as women, we can now freely contribute to, and make them is a change, too.

OUTCRY: The “men-only” FATF summit which led to stinging criticism last September.

Sharply different are two images released by FATF. One about six months ago, featured almost exclusively men (above). The other one, from FATF’s first event for women leaders within the agency which coincided on the same day of the AML Intelligence WiFC Summit, and which showed a much more diverse picture (below).

CHANGE: The first women leaders meeting by FATF which followed the campaign led by ‘AML Intelligence’.

We are part of the conversation; we represent freedom and the ability to choose whether and how to participate in professional life. The system has changed and needs to continue to change.

We do not stand for the prioritisation of a group over another, but we signal pride in our collective achievements so that future generations can build on them.

Change is needed, change is good.

AML Intelligence
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