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FICO USA Banking Survey 2019

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For many years the US banking industry has talked about the fraud and AML compliance departments working together more closely. It’s widely discussed that convergence of the two functions will support more effective financial crime management and improve operational efficiency. But it is difficult to gauge how far along the path to a single crime fighting unit most banks are. To understand the banking sectors strategies, concerns and plans for financial crime integration, FICO commissioned independent research.

About the survey:
This survey of 114 banks across 6 countries or regions, was carried out by research company Ovum. Senior management in fraud and AML compliance functions answered a comprehensive survey. The results in this e-book focus on the responses from US respondents.

Published in: Data & Analytics
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FICO USA Banking Survey 2019

  1. 1. USA Banking Survey 2019 Should Banks Adopt an Integrated Approach to Fraud Management and AML Compliance? The convergence of fraud management and anti-money laundering (AML) compliance within US banks has long been predicted but very few have created a single crime fighting unit. This survey uncovers the convergence strategies and plans of banks in the USA. Better Decisions
  2. 2. © 2019 Fair Isaac Corporation. All rights reserved. 2 USA Banking Survey 2019 Introduction For many years the US banking industry has talked about the fraud and AML compliance departments working together more closely. It’s widely discussed that convergence of the two functions will support more effective financial crime* management and improve operational efficiency. But it is difficult to gauge how far along the path to a single crime fighting unit most banks are. To understand the banking sectors strategies, concerns and plans for financial crime integration, FICO commissioned independent research. About the survey This survey of 114 banks across 6 countries or regions, was carried out by research company Ovum. Senior management in fraud and AML compliance functions answered a comprehensive survey. The results in this e-book focus on the responses from US respondents. Profile of respondents • US banks with a minimum of 500k customers (66% of respondents had over 5 million customers) • Job titles: Those with direct responsibility for either AML Compliance or fraud management from; technology, security, fraud, AML compliance, risk, operational compliance. *For the purposes of this e-book the term ‘financial crime’ encompasses both fraud and compliance for anti-money laundering
  3. 3. © 2019 Fair Isaac Corporation. All rights reserved. 3 USA Banking Survey 2019 What drives financial crime strategy for US banks? Customer experience is a major driver for US banks, particularly: • Customers being the victims of financial crime • The customer experience impact of measures designed to prevent financial crime The impact of managing financial crime on customer experience is less of a concern, suggesting disruption to the customer journey is a bigger problem than the experience of customers as cases involving them are investigated. Reputational damage is the biggest concern for AML compliance teams whereas fraud teams consider customers being the victims of financial crime the most significant issue. 18% Broader business impact from tackling financial crime Regulatory fines from compliance breaches Direct financial losses to your institutions from financial crime Impact of financial crime management on customer experience Operational costs involved in tackling financial crime Customer experience impact of anti-financial crime activities Reputation damage from failures to tackle financial crime Customers being victims of financial crime 36% 30% 33% 45% 45% 45% 45% % reporting as a significant concern Recommendation: Improving the accuracy of detection by using machine learning for fraud will protect both the bank and its customers. Artificial intelligence that has been specifically developed for AML can help improve detection rates and reduce the likelihood of unwittingly allowing money laundering and so protect reputation.
  4. 4. © 2019 Fair Isaac Corporation. All rights reserved. 4 USA Banking Survey 2019 What prevents US banks from achieving their financial crime objectives? Ensuring detection rates are high is a significant pain point for US banks, particularly for those involved in AML compliance, this contrasts with Europe where high detection rates are a much bigger pain point for fraud teams. US banks are less concerned about high rates of false positives than their European counterparts, false positive rates are a pain point for: • 44% of European banks • 24% of US banks US banks are also concerned about managing high volumes of alerts, suggesting that although they are concerned about missing cases they already have a substantial workload from those they do identify. Ensuring detection rates are high High levels of false positives Managing high workload volumes due to defensive SAR filings Speed in responding to new financial crime threats Managing increasing levels of alerts Time taken to process alerts Disconnected approach to managing financial crime Changing compliance requirements Lack of overall business buy-in to controls and requirements Lack of technological innovation 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% Rank 1 Rank 2 Rank 3 Recommendation: To better manage high volumes of alerts banks should focus on improvements to case management making it more efficient and less of burden for investigative teams. This can be combined with the use of machine learning across both money laundering and fraud to ensure high detection rates. Respondents were asked to select their top 3 concerns from these categories and rank those 3 concerns.
  5. 5. © 2019 Fair Isaac Corporation. All rights reserved. 5 USA Banking Survey 2019 How do banks think they will benefit by integrating fraud and AML Compliance? US banks expect the highest level of benefit to come from improvements in overall detection effectiveness, given detection rates is identified as a major pain point for them it is encouraging that they expect integration to help with this. It is also expected that convergence of the fraud and AML functions will deliver benefits in terms of cost reductions particularly in data management. US respondents see a wide range of benefits to taking an integrated approach though they were less likely to consider rationalization of redundant systems and overlapping functionality as a benefit compared to respondents from other countries. Operating cost benefits - technology Greater scalability Greater overall detection effectiveness Stronger consistency in controls Eliminating redundant systems and overlapping functionality Operating cost benefits - staff Operating cost benefits - data 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% High benefit More benefit Some benefit Low benefit Recommendation: With high expectations for a broad range of benefits, US banks should take care that as they transition to integrated financial crime departments they select appropriate technology to support them across both fraud and AML compliance.
  6. 6. © 2019 Fair Isaac Corporation. All rights reserved. 6 USA Banking Survey 2019 How integrated are banks financial crime functions currently? US banks currently report low levels of integration • Only 24% of US banks have fraud and AML compliance functions reporting into the same business executive. • In Canada the figure is 57% and in Europe its 37%. There are some US banks with low levels of collaboration and fully separate functions for all categories assessed, this contrasts with other countries where responses tended to rarely state there was complete separation. Recommendation: To catch up with this global trend, US banks must take a proactive approach to aligning their financial crime functions and should look to support this with technology that can accelerate their progress. Data Investigation systems Controls Detection systems Financial crime-related employees Business processes (e.g. investigations) Function management 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Integrated High level of collaboration Low level of collaboration Fully separate
  7. 7. © 2019 Fair Isaac Corporation. All rights reserved. 7 USA Banking Survey 2019 Do US banks have ambitions for full integration? US banks are not only less integrated than those in other countries, with the exception of the Nordics they also have lower ambitions to become fully integrated. All US banks surveyed do have some plans in place for fraud and AML compliance functions to work together more closely, with almost three quarters describing their plans as strategic: • 24% of US banks have strategic plans to fully integrate their financial crime functions • 48% have strategic plans to share resources where synergies exist • No US banks report neither strategic nor tactical plans for integration Recommendation: Banks wanting to integrate their financial crime functions still need expertise in both fraud management and AML compliance They should seek partners that can support them with world-class expertise in both domains. 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 0% UK South Africa Germany & Austria Canada USA Nordics % With Strategic Plans For Full Integration US banks’ plans for integration of financial crime functions 48% 12% 15% 24% Strategic plan to fully integrate functions Strategic plans to share resources where synergies exist Tactical approach to sharing resources where synergies exist, active drive for this Tactical approach to sharing resources where synergies exist, no active drive for this
  8. 8. © 2019 Fair Isaac Corporation. All rights reserved. 8 USA Banking Survey 2019 How quickly do banks plan to integrate their financial crime functions? While US banks are less ambitious than other nations in the degree to which they seek integration, their timelines for achieving their plans are ambitious. • 86% of US banks expect to achieve their planned integration within three years • Only 72% of Canadian banks and 64% of European banks expect to achieve the same timelines. Recommendation: Given the ambitious timelines that US banks have for integration of their financial crime functions they will need supportive partners who can help them. Technology implementations that take months to go live and weeks to make simple changes will not meet requirements. Within 1 year 1 year to less than 2 years 2 years to less than 3 years 3 years to less than 5 years 5 years and more 4% 36% 46% 14% 0%
  9. 9. © 2019 Fair Isaac Corporation. All rights reserved. 9 USA Banking Survey 2019 Conclusions While the vast majority of banks in the USA have plans to integrate their financial crime functions, they are not currently as integrated as banks in other countries and don’t intend to integrate as tightly. Their timescales to achieve the plans they do have are however ambitious. Those banks in the US that have not yet developed a convergence strategy may see their profitability suffer as they won’t experience the cost reductions this enables. Those who have successfully embraced convergence will drive down their exposure to financial crime; this could make those that haven’t, more attractive to criminals looking for vulnerable targets. While US banks can’t be seen as early adopters of a more integrated approached they have the chance to overtake those countries who are. Technology that can help them accelerate integration is now available and they can capitalize on the experience of those that have gone before. To understand more about the survey results with interpretation by leading industry analyst Daniel Mayo from Ovum, read the whitepaper: Adopting an integrated approach to fraud and financial crime compliance. How FICO helps We have built on our rich heritage of providing fraud and anti-money laundering solutions to offer both from a single platform. Falcon X is a cloud-based platform that allows you to seamlessly manage fraud and financial crime with unified case management, machine learning analytics and flexible integration and orchestration of data. You can start using Falcon X to support one function or accelerate benefits by using a converged platform straight away.
  10. 10. USA Banking Survey 2019 NORTH AMERICA +1 888 342 6336 info@fico.com FOR MORE INFORMATION www.fico.com www.fico.com/en/blogs LATIN AMERICA & CARIBBEAN +55 11 5189 8267 LAC_info@fico.com ASIA PACIFIC +65 6422 7700 infoasia@fico.com FICO is a registered trademark of Fair Isaac Corporation in the United States and in other countries. Other product and company names herein may be trademarks of their respective owners. © 2019 Fair Isaac Corporation. All rights reserved. 4743BK_UK 08/19 PDF EUROPE, MIDDLE EAST & AFRICA +44 (0) 207 940 8718 emeainfo@fico.com FICO Falcon X for Payments Falcon X gives you the freedom to design, simulate and implement new fraud and financial crime management strategies without technical constraints. As a result, you can confidently support all digital banking interactions across authentication, payments and account maintenance while exceeding the expectations of your customers. Falcon X gets you started quickly by providing: • Real-time analysis of payment transactions so you can take action before losses occur. • Pre-mapped data integration for retail banking payments. • Packaged real-time payments fraud rule-set. • Workflows including rules and machine learning orchestration. Falcon X delivers the nano-profiling and historical context needed to protect against account takeover associated with P2P transfers, mobile payments, CH and wires. FICO Falcon X for real-time AML Around the globe, regulators are encouraging organizations to develop and embrace innovations that improve AML performance. FICO Falcon X provides a parallel path for next-generation and legacy technology to coexist. This allows you to complement your existing AML capabilities with: • Complex variables and aggregations. • Profiling of any entity, including beneficiaries. • Machine learning models with explainable AI. • Real-time screening and alerting. • Unified alert and case management across fraud and compliance. With Falcon X you can reduce the cost burden of unnecessary investigations by more accurately detecting suspicious behaviors for review, then automating manual tasks within a flexible, unified case manager.

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