Deutsche Bank - Filtering system quality testing


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Presentation from SWIFT Complaince Day Frankfurt 2014

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Deutsche Bank - Filtering system quality testing

  1. 1. 0 Deutsche Bank AML / Embargo Confidential Filtering System Quality Testing – DB Experiences – SWIFT in Compliance Frankfurt, 17th June 2014 Arne Hartung Group Embargo Officer Deutsche Bank Group
  2. 2. 1 Deutsche Bank AML Embargo Agenda I Challenges II FSQT @ DB III Key Takeaways
  3. 3. 2 Deutsche Bank AML Embargo Filter technology has to strike a balance btw regulatory required effectiveness and market-expected efficiency … Challenges Regulatory Expectations  Regulators internationally advocate risk-based approaches – however error- tolerance has significantly decreased  Specifically expecting increasingly complex filtering logics & algorithms as good/best practice  Tight-knit oversight and preemptive testing of filter effectiveness  Controlled run-down procedures (for fire-drill or crisis mode) Market Expectations  ‘Real-time’ cash processing in different financial hubs, e.g. ̵ APAC: e.g. 30 sec response in Singapore ̵ LatAM: e.g. 2 min for online trx in Brazil  Cross time zone intraday clearing  Bulk processing in peak times  Re-arranging financial flows in EU in context of SEPA
  4. 4. 3 Deutsche Bank AML Embargo … while technological developments allow for ever granular fine-tuning & parameterization Challenges  Parameters no longer ‘intellectu- ally’ manageable – requiring systematic testing and simulation  Improved functionalities correlate with increasing hit rate  Different jurisdictions and regulators put different emphasize on different functional capabilities  New functionalities come along with additional parameters increasing interrelations between functions  Strive for one-platform requires careful parameter-setting as impact may be significant and unexpected CommentsTechnological Developments illustrative  Plain filtering w/ good and bad guys  Full text scanning  Field-based scanning  Fuzzy logic with thresholds  Word weighting  CNS scanning  Phonetic scanning  Complex rules & weighting  Multi-language & character sets (Cyrillic, CCC, …)
  5. 5. 4 Deutsche Bank AML Embargo Agenda I Challenges II FSQT @ DB III Key Takeaways
  6. 6. 5 Deutsche Bank AML Embargo DB adopted the SWIFT/Omnicision tool STS as integral part of it’s Sanctions QA Framework in 2013 FSQT Component Golden Source of Flows and Controls Sample Testing Filtering System Quality Testing Onsite Reviews Risk Assessment Sanctions QA Framework In accordance with international standards and recommendations (e.g. Wolfsberg Group, FCA best practice catalogue, …) a continuous Filtering System Quality Testing (FSQT) was introduced in 2013 Following a detailed vendor selection process DB opted for the SWIFT/Omnicision tool STS due to a number of reasons:  High degree of automation (synthetic test case creation from sanctions lists)  Seamless integration with all relevant filter solutions  Approach is supporting the mapping of details of the test result to specific parameters  Tests are repeatable, reproducible and auditable  SWIFT is using the testing service to optimize it‘s own filtering system as well
  7. 7. 6 Deutsche Bank AML Embargo First onboarding and test cycle took about 6 month to be performed – working group now rolling out the concept FSQT Process  Decision to ‚pilot‘ test the tool immediately with the most critical instances of the filter application  Specific focus was on structured (MT103) vs. unstructured (MT199) messages  Test include parameters as well as list completeness & good guys  Continuous filter methodology comprises both permanent tests as well as on-demand tests which can be: ̵ observation tests that are scheduled on an ad-hoc basis (e.g. based on a management request) ̵ prediction tests to optimize the filter performance and hit rate CommentsProcess Steps Kick off Observation Definition Configuration Testing Preparation Preliminary Findings Observation Testing Define Test Objective Prediction Findings Prediction Testing Training T0 Configuration C1 Observation C2 Prediction Permanent QA testing First-time cycle ca 6 months
  8. 8. 7 Deutsche Bank AML Embargo Agenda I Challenges II FSQT @ DB III Key Takeaways
  9. 9. 8 Deutsche Bank AML Embargo First testing phases also allow for some more general lessons learned Key Takeaways Will always show room for improvement  Can test different solution options to already known areas for improvement  Always reveals some not yet known tweaks and tunes Is not a one-time effort  Benefit will come from translation into a continuous test framework and plan  Re-testing parameter set‘s and roll-out to all connected filter applications Is a collaborative exercise  Complexity of test cases and result interpretation requires collaborative approach by team of IT, Operation and Compliance experts Requires significant resources  Both test preparation and specifically the follow-up activities require substantial resources and attention  Follow-up process closely monitored by regulators and stakeholders Gives opportunity and basis for regulator dialogue  Provides an objective and auditable basis for risk-based filter settings and decisions  Outcome attracts immediate regulatory interest and follow-up – limited room for ‘just-see-what-comes-out’