Neil Katkov, PhD
Trends in Anti-Money Laundering 2011
July 2011
This authorized reprint contains the full content of the Celent report
Trends in Anti-Money Laundering 2011. This report was not sponsored by
Fiserv in any way. This reprint was prepared specifically for Fiserv, but
the analysis has not been changed from the analysis presented in the
original report. For more information on Celent’s services, please contact
Celent at info@celent.com or +1.617.262.3120.
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Executive Summary
Introduction
AML Trends: The View from the Cockpit
AML Drivers
AML Operations: A Scale Game
AML Compliance Costs
AML Spending Trends
AML Compliance Cost by Function
Technology Sourcing Trends
Global Spending on AML Compliance
AML Technology Spending
AML Software Spending
AML Software Vendors
Market Consolidation
Evolution in AML Technology
Enterprisewide Compliance
Integrating Anti-Fraud and AML: The Holy Grail
The Case for Enterprisewide Compliance
Centralized Case Management as a First Step to Enterprisewide
Compliance
Internal Fraud
Expansion of AML Markets
Small Banking
Insurance AML
Nonbank Financial Services
Regional Markets
AML by ASP
Conclusions
Leveraging Celent’s Expertise
Support for Financial Institutions
Support for Vendors
Related Celent Research
Executive Summary
This report incorporates the results of an exclusive Celent survey of
anti-money laundering compliance departments at more than 75
financial institutions globally. The report benchmarks AML operations
and costs, and analyzes trends in AML technology, including Celent’s
estimates of global spending on AML software, vendor consolidation,
and advances / product enhancements in AML technology. The report
also examines the emerging trend towards enterprisewide compliance,
in terms of consolidation of siloed AML operations and technology, as
well as integration of AML and anti-fraud.
This is the first in a series of four reports covering the current state of
the AML technology market. The other reports in the series are:
„ Evaluating the Enterprisewide Compliance Vendors 2011: Solutions
for Anti-Money Laundering and Anti-Fraud, which profiles more
than 20 providers of end-to-end AML/fraud solutions, and
assesses them using Celent’s ABCD evaluation model.
„ Evaluating the Vendors of Watchlist and Sanctions Solutions,
which profiles providers of both batch-based and real time
OFAC/sanctions watchlist solutions and assesses them using
Celent’s ABCD evaluation model.
„ Specialist Providers of Anti-Money Laundering Technology pres-
ents an overview of advanced technology issues in AML and
provides profiles of a variety of specialist vendors. Because
these firms are working in different areas, an ABCD evaluation is not provided.
Copyright 2011 © Celent, a division of Oliver Wyman, Inc.
3
Introduction
Ten years after 9/11, the compliance regime surrounding anti-money
laundering (AML) continues to evolve and expand, inexorably and
across multiple dimensions. With each passing year, AML compliance
covers ever more geographies, industry segments, and processes. In
order to fulfill the increasing requirements, financial firms continue to
grow and refine their compliance operations, often on a global scale. In
turn, to fulfill the requirements of financial firms and compete in a
crowded marketplace, the providers of AML software continue to
enhance their technology. And then somewhere a new regulation is
imposed, triggering another round of development.
Celent estimates that 2011 spending on AML compliance, including
operations and technology, will reach US$5.0 billion globally. Operations accounts for US$3.8 billion. Technology, including internal and
external IT spending, makes up the other US$1.2 billion. Of the technology spending, packaged AML software will reach US$458 million in
2011. Celent projects that the overall AML compliance burden will
expand at a rate of 7.8% annually, reaching a global total of US$5.8 billion in 2013. Global spending on AML software will expand at a rate of
10.4% annually, to US$557 million in 2013.
Such staggering sums imply that AML compliance is a complex domain
with numerous subsections, each of which generates its own substantial costs. This report is intended as a guide to the AML compliance
industry today, including emerging trends Celent has identified that
we believe will be central to AML compliance in future.
The first section presents the results of a Celent survey of more than 75
financial firms globally. The survey presents the views of compliance
officers on spending trends and captures benchmarking data for small,
medium, and large firms.
The remainder of the report examines global spending on AML operations and technology, the maturation of the AML vendor marketplace,
evolution and improvements in AML software, and AML compliance
across industries and geographies. Finally, we look at emerging trends
that will shape the future of AML compliance, including integrating
AML and anti-fraud to achieve enterprisewide compliance, and AML
outsourcing, including BPO, ASP, and SaaS approaches.
Copyright 2011 © Celent, a division of Oliver Wyman, Inc.
4
AML Trends: The View from the
Cockpit
Nearly ten years after 9/11, AML compliance continues to evolve, due to
increasing regulatory demands on the one hand and developing organization and technology best practices by financial institutions on the
other. As a result, the cost of running an AML compliance program
continues to rise. Faced with increasing pressures in terms of both
compliance and costs, financial institutions are seeking efficiencies in
operations and technology. This need to achieve greater efficiencies is
driving a trend towards centralization and standardization of AML
operations, as well as integration of AML and anti-fraud programs.
In a nutshell, this is the picture provided by a recent Celent survey of
AML compliance in the financial services industry. In this section we
present highlights of this survey, which polled more than 75 financial
institutions of all sizes globally.
AML compliance is having profound effects on the culture, organization, and technology of banking. The importance being placed on AML
compliance is ever increasing. As a result, AML operations are more
complex, and technology plays a bigger role than five years ago.
Moreover, the influence of AML compliance on financial institutions
often goes beyond operations and technology to the core of a firm. This
was expressed well by the compliance officer of a US community bank
which, when asked to characterize how AML compliance has changed
over the past five years, said, “There has been a cultural change in the
banking industry. Before we were focusing more on the customer, now
we have to focus more on compliance.”
AML Drivers
AML compliance is usually thought of as a cost center, an ineluctable
obligation imposed by the regulator. But there are other reasons for
implementing a solid AML program, which touch on the business side
as well as the regulatory. Foremost among these is reputational risk.
Revelations of a financial firm abetting money laundering or terrorist
funding, or simply a black mark on compliance from regulators, may
drive current and potential customers away and result in loss of business. Strong AML compliance can also improve business results. For
Copyright 2011 © Celent, a division of Oliver Wyman, Inc.
5
example, an AML officer at a prominent bank in Asia cited a link
between rigorous compliance and investor confidence in the bank, as
reflected in its share price.
Most respondents to our survey (42%) cited regulatory requirements as
the main driver for AML compliance. However, a substantial segment
(25%) named reputational risk and protecting the brand as the primary
purpose of their AML efforts. In practice, these drivers are inter-dependent. In qualitative interviews accompanying the statistical survey, a
number of firms saw the key drivers of AML compliance as interlinked.
Regulatory compliance creates a need to guard against reputational
risk, which improves business results by, for example, potentially
increasing shareholder value.
Figure 1: AML Compliance Drivers
What is the m ain driver for AML c om plianc e at
your firm ?
Regulatory
c omplianc e
42%
Other
25%
Improv e
bus ines s
res ults
8%
Reputational
ris k/protec t
the brand
25%
Source: Source: Celent AML compliance survey
AML Operations: A Scale Game
AML is a scale business. While there is some variation among firms,
the size and cost of AML compliance departments follow fairly predictable patterns according to the size of the financial institution. The size
of AML compliance departments is fairly constant among bank tiers,
but especially represent a burden at the larger firms. Celent’s survey
results indicate that small banks of less than US$1 billion in assets typically have ten or fewer full time equivalent (FTE) staff engaged in AML
compliance related tasks. Medium-sized institutions have to deal with
AML across several lines of business lines, which increases the size of
the total AML operation. Banks with US$1 billion to US$100 billion in
6
Copyright 2011 © Celent, a division of Oliver Wyman, Inc.
assets will typically range from 15 to 50 FTEs working on AML compliance. Banks over US$100 billion in assets may have 50 to 200 AML staff,
in rough scale to the bank’s size (see Figure 2 on page 7).
Figure 2: Typical AML Compliance FTEs by Size of Firm
AML c om plianc e organization by s ize of firm
~500
100
No. of Staff
80
60
40
20
0
<US $1bn
as s ets
US $1 - 10 bn US $10 - 100 >US $100 bn
as s ets
bn as s ets
as s ets
L arge
multinational
Source: Celent AML compliance survey
Compliance departments at insurance companies follow a similar pattern. Brokerages and asset managers tend to have smaller compliance
staff relative to the size of the business.
The outlier to the scale rule is large multinational banks operating in
dozens of countries. These firms tend to be universal banks with
numerous lines of business including retail and wholesale banking,
brokerage and asset management and possibly insurance. In addition
they maintain on-the-ground AML staff in each country, as well as
large AML operational and IT platforms. AML compliance personnel at
such firms can exceed 500 or even 700 staff, distributed amongst a variety of LoBs and regions.
AML Compliance Costs
Turning our attention to the cost of AML compliance, it is fair to say
that AML is a burden at any institution. However, Celent’s survey
results indicate that the cost burden is disproportionately heavy at the
smallest banks. Like the size of AML compliance operations, costs are
also generally predictable according to the size of the institution. AML
compliance costs, including personnel and technology, range from several US$100,000s at small banks, to tens of millions of dollars at large
institutions (see Figure 3 on page 8).
Copyright 2011 © Celent, a division of Oliver Wyman, Inc.
7
Figure 3: Typical AML Compliance Costs by Size of Firm
AML c om plianc e c os t, by s ize of firm
20
US$ mn
15
10
5
0
<US $1bn
as s ets
US $1 - 10 bn US $10 - 100
as s ets
bn as s ets
>US $100 bn
as s ets
Source: Celent AML compliance survey
If we look at the relative burden of AML compliance costs to a financial
institution, as measured by proportion of AML costs to total assets, we
find that the cost burden is a fairly consistent 0.005% to 0.01% at
medium to large size banks (assets over US$1 billion). Small banks
carry a disproportionate compliance burden compared to the other
tiers, with AML costs averaging 0.4% of assets, or 40 to 80 times greater
as a proportion of assets than at medium and large firms (see Figure 4
on page 8).
Figure 4: Relative cost of AML Compliance by Bank Tier
AML c om plianc e c os ts as % of as s ets
1.0%
0.8%
0.6%
0.4%
0.2%
0.0%
<US $1bn
as s ets
US $1 - 10 bn
as s ets
US $10 - 100
bn as s ets
>US $100 bn
as s ets
Source: Celent AML compliance survey
8
Copyright 2011 © Celent, a division of Oliver Wyman, Inc.
AML Spending Trends
The results of our survey show, not surprisingly, that financial institutions expect AML compliance costs to continue to increase (see Figure
5 on page 9).
Figure 5: AML Spending Trends
Will AML c os ts inc reas e or dec reas e over the
next 12 m onths ?
11 - 20%
inc reas e
26%
5 - 10%
inc reas e
32%
>50%
dec reas e
11%
5 - 10%
dec reas e
5%
No c hange
26%
Source: Celent AML compliance survey
A majority of respondents, 58%, expected that AML compliance costs,
including both personnel and technology costs, will increase by at least
5% over the next 12 month period. About half of these (26% of the total
pool) see spending increasing by at least 10%. Respondents indicated
that the greatest driver for the increase is new regulatory demands for
additional processes and technology, such as implementation of riskbased scoring or identification of an account’s ultimate beneficial
owner (UBO) during the customer due diligence process.
On the other hand, medium or large banks that have recently completed substantial technology initiatives expect overall AML costs to
fall dramatically, for the simple reason that costs were high during the
implementation phase. Running costs for installed software can be
only a fraction of the purchase and implementation costs. For these
and other reasons, 11% of respondents expected AML costs to drop by
50% or more.
At the same time, a substantial portion, about one-fourth of respondents, saw spending as remaining flat. The reason for this differed by
tier:
Copyright 2011 © Celent, a division of Oliver Wyman, Inc.
9
„ Small banks in the US have recently fallen under the scrutiny
of regulators, and so have had to ramp up their AML efforts,
putting in place new technology and hiring additional staff.
With this new compliance set-up in place, such banks project
their current AML operations will be sufficient to handle any
increased regulatory demands in the short term. For small
institutions that have recently installed new AML software,
because implementation costs at small banks tend to be low,
overall costs are expected to hold steady, rather than dip at
the larger firms that have recently implemented new
technology.
„ Large banks, particularly multinational banks, see increased
regulatory needs driving up costs on the one hand, and standardization and realization of efficiencies reducing costs on
the other, with these forces balancing one another.
Standardization of Processes to Keep AML Costs in
Check
Some explanation will help put this balancing act at large multinationals in context. Large firms are continually seeking to refine processes,
realize efficiencies, and reduce compliance risk. At large multinational
banks, the processes and technology of AML compliance are being
affected by the globalization of AML regulation. For large multi-nationals operating in many countries, technology is becoming an
increasingly global setup. This is driving a need to standardize processes across regions, subsuming country-specific regulations and
regulators where possible. At the same time, such banks are applying
more technology to processes, including processes that were largely
manual, such as customer due diligence As a compliance officer at one
large multinational bank put it, “The focus is now more on standardization and automation, while before it was on mere regulatory
compliance.” While these banks can not, at least not yet, hope for compliance costs to fall, they are attempting to hold them in check through
standardization and automation of processes.
10
Copyright 2011 © Celent, a division of Oliver Wyman, Inc.
AML Compliance Cost by Function
Celent also asked firms regarding the breakdown of their AML costs in
terms of operations and technology (see Figure 6 on page 11). Operational costs (essentially personnel costs) involved in training, customer
due diligence, and ongoing monitoring, analysis and reporting make
up 77% of AML compliance costs on average.
Figure 6: AML Compliance Costs: Operations and Technology
Breakdown of AML c om plianc e c os ts
CDD
ac c ount
onboarding
16%
Tec hnology
23%
Ongoing
trans ac tion
monitoring
47%
Training
14%
Source: Celent AML compliance survey
Ongoing AML monitoring / analysis and associated reporting account
for close to half of AML compliance costs, with customer due diligence
at account onboarding and training together accounting for 30% of
costs. Technology, including both internal and external spending, is an
average 23% of AML costs at the institutions surveyed.
AML Functional Cost Breakdown by Tier
Some important differences emerge from the functional breakdown
when analyzed by the size of the financial institution (Figure 7 on page
12). Ongoing monitoring and analysis make up the greatest proportion
across all tiers, but are particularly high (60% of AML costs) at medium
sized banks. Celent believes this is due primarily to the high retail
transaction volumes typical of firms of this size, which operate in one
major home market.
At the same time, customer due diligence at small to medium sized
banks is 15% or less of AML costs, but a much larger proportion (24%) at
large institutions. The greater weight of spending on CDD at larger
institutions can be attributed to the considerable business they do in
high-value accounts, both wealth management on the retail side, and
corporate accounts.
Copyright 2011 © Celent, a division of Oliver Wyman, Inc.
11
The proportion of AML spending directed to technology also varies
widely among tiers. IT makes up a fairly small proportion of total AML
costs at banks with over US$10 billion in assets (10% to 16%). This is
due both to the economy of scale created by automating the monitoring process, and to the fact that analysis of generated alerts is still a
very manual (although technology assisted) process. IT is a larger proportion of AML costs (28% to 37%) at institutions under US$10 billion in
assets, again relative to the fairly small analyst teams needed at firms
of this size.
Figure 7: AML Compliance Cost Breakdown by Tier
AML c om plianc e c os t breakdown by s ize of firm
100%
80%
60%
10%
28%
37%
15%
16%
14%
15%
17%
24%
12%
15%
12%
41%
39%
<US $1bn
as s ets
US $1 - 10 bn
as s ets
40%
60%
20%
46%
0%
Ongoing trans ac tion monitoring
Training
US $10 - 100
bn as s ets
>US $100 bn
as s ets
CDD ac c ount onboarding
Tec hnology
Source: Celent AML compliance survey
Interestingly, the proportion of AML costs attributed to training is fairly
consistent among all tiers, ranging from 12% to 17%.
Technology Sourcing Trends
Celent’s survey results indicate that financial institutions are continuing to actively acquire new AML software (Figure 8 on page 13). Over
half of survey respondents installed new AML software within the last
two years. This suggests that the combination of regulatory pressure,
evolving AML technology, and accumulating bank expertise in AML
compliance operations have been driving purchases of new technology
in recent years.
Moreover, this purchase cycle has not run its course, as institutions
with aging technology will seek to replace it in response to regulatory
and operational pressures. Nearly one-quarter of respondents stated
their AML systems were over five years old; such firms will have a need
to replace them in the near future. Interviews with institutions also
12
Copyright 2011 © Celent, a division of Oliver Wyman, Inc.
revealed that some firms will replace an AML system if it is not
enabling them to meet their compliance obligations. As a result, some
of the 23% of firms whose software is three to five years old can also be
expected to make new purchases.
Figure 8: AML Technology Replacement Trends
z
Age of AML s oftware
<1 y ear
23%
>5 y ears
23%
1 - 2 y ears
31%
3 - 5 y ears
23%
Source: Celent AML compliance survey
In terms of deployment, a full 90% of survey respondents indicated
they are running their AML software inhouse (see Figure 9 on page 13).
Clearly it will take some time for firms and regulators in some jurisdictions to overcome their concerns over relying on external providers for
AML compliance. At the same time, the 10% of firms that do use ASPbased AML systems reflects the emerging trend to outsourcing of AML
technology and operations.
Figure 9: AML Technology Deployment Trends
AML tec hnology deploym ent
In-hous e
90%
AS P
10%
Source: Celent AML compliance survey
Nearly any institution, regardless of size, uses several providers to
cover all their AML compliance needs. Recent years, though, have seen
a trend to rationalizing technology suppliers for increased efficiency,
Copyright 2011 © Celent, a division of Oliver Wyman, Inc.
13
standardization and, potentially, lower cost. Even large institutions,
which may have dozens of AML solutions scattered among the different silos and regions of the enterprise, are using AML suites where it
makes sense.
This means more firms are using one vendor for the entire suite of
AML functionality: CDD, ongoing transaction monitoring, watchlist filtering, case management and reporting. Indeed, 40% of survey
respondents indicated they have or are intending to go the AML suite
route in terms of technology sourcing (Figure 10 on page 14). At larger
firms, this is due to the efforts to standardize and centralize operations
and technology. For smaller firms, the choice of an AML suite is made
simpler due to the availability of affordable yet highly functional software packages targeted at this tier.
Figure 10: AML Vendor Sourcing Trends
Tec hnology s ourc ing: vendor s trategy
Bes t-ofbreed/multiv endor
60%
AML s uite
40%
Source: Celent AML compliance survey
14
Copyright 2011 © Celent, a division of Oliver Wyman, Inc.
Global Spending on AML
Compliance
Depending on where one sits in the compliance value chain, the cycle
of ever more stringent regulatory demands generating a need for ever
more efficient AML operations may appear virtuous or vicious. Whichever view you take, the scale of the AML compliance “industry” is
impressive. Celent estimates that spending on AML compliance,
including operations and technology, will reach US$5.0 billion globally
in 2011 (see Figure 11 on page 15). Operations—training, analysis and
reporting—accounts for about three-quarters of the total, or US$3.8 billion. Technology, including internal and external IT spending, makes
up the other US$1.2 billion. Celent projects that global AML compliance
spending will increase at a compounded annual growth rate (CAGR) of
7.8% annually, to reach US$5.8 billion in 2013, with operations accounting for US$4.4 billion of the total and technology US$1.4 billion.
Figure 11: Global AML Compliance Spending
Global AML c om plianc e s pending
5,830
6,000
USD mn
5,000
4,000
5,406
4,648
5,013
4,310
991
1,069
1,203
1,297
1,399
3,000
2,000
3,319
3,579
3,810
4,109
4,431
2009
2010
2011
2012
2013
1,000
0
Operations
Tec hnology
Source: Celent
AML Technology Spending
AML technology spending is dominated by vendor-provided software,
as well as by internal spending by financial institutions (see Figure 12
on page 16). Celent estimates that of the US$1.2 billion spent on AML
technology in 2011, internal spending will account for US$371 million,
or 31%, while vendor solutions will make up USS458 million, or 38% of
Copyright 2011 © Celent, a division of Oliver Wyman, Inc.
15
the total. In addition to the software itself, Celent includes vendor- provided professional services—which may reach 40% of an AML software
vendor’s revenues—in our external software spend estimates.
The high proportion of spending on these two areas is due to the
increasing complexity and specialization of the software, as well as the
onerous data management, customization / configuration and fine
tuning often needed to meet an institution’s specific needs and produce optimal results.
As a result, a relatively smaller proportion of AML IT spending goes to
other external services (16%) and hardware (15%).
Figure 12: Global AML technology spending breakdown
Global AML tec hnology s pending
1400
1200
USD mn
1000
800
183
150
157
600
400
200
165
191
202
211
223
233
173
458
504
557
318
371
381
386
2010
2011
2012
2013
375
413
309
2009
0
Internal S pending
Ex ternal S erv ic es
Ex ternal S oftw are
Hardw are
Source: Celent
16
Copyright 2011 © Celent, a division of Oliver Wyman, Inc.
AML Software Spending
Focusing on the external software segment, global spending on packaged software and associated services provided by AML software
vendors is projected to expand from US$458 million in 2011 to US$557
million in 2013, for a CAGR of 10.4% (see Figure 13 on page 17).
Figure 13: AML software spending by region
Global AML s oftware s pending
600
CAGR = 10.4%
500
USD mn
400
300
200
100
92
117
148
166
195
171
184
150
166
178
2011
2012
2013
145
152
160
138
144
2009
2010
0
Americ as
EMEA
As ia
Source: Celent
The AML software market in the Americas, which was characterized by
flat growth from 2009 to 2011 due to the maturity of the market as well
as spending contraction following the financial crisis, is undergoing a
striking rebound. Celent projects that AML software spending in the
Americas will grow from US$150 million in 2011 to US$178 million in
2013, for a healthy CAGR of 8.9% over this period.
Specific requirements from regulators, such as customer due diligence
/ risk scoring at customer onboarding and Fincen’s proposed cross-border electronic funds transfer reporting rule, are one important driver.
Another factor driving the spending growth is the broadening of regulatory scrutiny to new segments such as small banks / credit unions,
insurers and brokerages. Previously, many institutions including small
banks handled AML requirements through manual processes, or
evaded them altogether. On the other hand, large insurers built
focused, lean solutions inhouse. This constrained growth in spending
on AML software. However regulators are increasingly putting pressure
on these industry segments to implement industry standard technology. Finally, the trend to integration of anti-money laundering and antifraud operations onto a common platform, the enterprisewide compliance approach, is gathering steam, with a significant number of
Copyright 2011 © Celent, a division of Oliver Wyman, Inc.
17
financial institutions adding new anti-fraud modules to existing AML
platforms, or replacing legacy systems with software capable of supporting both AML and anti-fraud.
Looking at other regions, we see that the fastest growth in AML software spending will be found in Asia. Celent projects that AML software
spending by financial institutions in Asia will expand from US$148 million in 2011 to US$195 million in 2013, a growth rate of 14.8% annually.
Continuing the pattern of the past five years, this growth will be driven
by the gradual adoption of more stringent AML regulation in scattered
countries around the region, rather than a coordinated regionwide
wave of regulation. The gradual trend to AML compliance in the region
will ensure the healthy, long-term growth of the AML software market
in this region.
Spending on AML software in Europe has also maintained steady,
though more modest, growth. The original adoption of the Third EU
Money Laundering Directive has been followed by subsequent regulation like the UBO requirement, country specific initiatives such as in
the UK, and the gradual adoption of AML regulation in Eastern and
Central Europe. As a result, Celent sees AML software spending in
Europe expanding from US$160 million in 2011 to US$184 million in
2013, a CAGR of 7.2% (and following upon a 5.1% growth rate from 2009
to 2011).
18
Copyright 2011 © Celent, a division of Oliver Wyman, Inc.
AML Software Vendors
Anti-money laundering software comprises several distinct functional
areas: transaction monitoring, watchlist screening (including real time
screening of wires), customer due diligence (CDD), case management,
and reporting.
„ Increasingly, AML vendors are expanding their product lines
to include most or all of this functionality in an end-to-end
solution, or AML suites.
„ A smaller segment of vendors concentrates on watchlist
screening, either in batch mode for screening of transactions
and customer lists, or in real time for screening and sanctioning of outgoing wires or other payments.
„ The need for ever more effective technology has given rise to
an interesting ecosystem of specialist vendors focusing on
various intractable problems in AML compliance, such as foreign names transliteration, watchlist filtering optimization,
case management, and media screening.
The AML software market is crowded, with numerous vendors entering
and leaving the market each year. Among this crowded pool, Celent
has identified a number of vendors which might reasonably be
included in a financial institution’s software selection process (see
Table 1 on page 20). Celent’s list includes both market dominant vendors, as well as smaller niche providers, regional vendors, and vendors
catering to the needs of smaller financial institutions. Many of these
vendors will be featured in our three upcoming AML vendor reports,
Evaluating the Enterprisewide Compliance Vendors 2011: Solutions for AntiMoney Laundering and Anti-Fraud, Evaluating the Vendors of Watchlist and
Sanctions Solutions, and Specialist Providers of Anti-Money Laundering
Technology.
Copyright 2011 © Celent, a division of Oliver Wyman, Inc.
19
Table 1: Selected AML software vendors: A virtual long list
AML Suites
Watchlist Specialists
Specialist
Technologies
3i Infotech
Ocean Systems
Accuity
AML RighSource
ACI Worldwide
Oracle / Mantas
Attus Technology
Basis Technology
Aquilan
SAS
Fircosoft
Intersoft KK
BAE / Detica Norkom
SunGard
Innovative Systems
KYC360
Cellent Finance Solutions
TCS
Lexis Nexis / Bridger
KYCNet
EastNets
Temenos / Viveo
Logica
NetBreeze
Experian
Thomson Reuters /
Northland Solutions
Oracle / Datanomic
Pegasystems
FIS
Tonbeller
Thomson Reuters /
Complinet
Safe Banking Systems
Fiserv
Top Systems
Infrasoft
Verafin
Jack Henry
Wolters Kluwer
Truth Technologies
Nice / Actimize
Source: Celent
Market Consolidation
AML is a necessary business, but not necessarily a hugely profitable
one. As described above, high-profile institutions are spending substantial sums on AML, both due to receiving greater attention from
regulators, but also their sensitivity to reputational risk. Regional
demand in Asia, EMEA and South America is on the rise. More industry
sectors and tiers are being required to automate their AML processes.
However, due to the high cost of developing this specialized software,
as well as a crowded vendor market, the steady demand for ever more
sophisticated software does not necessarily translate into high yearon-year growth or profitability for any particular vendor.
This fact of life has given rise to a deep wave of consolidation (see
Table 2 on page 21). In some cases, such as the acquisition of one AML
firm by another in order to acquire its client base, this may result in the
acquired vendor’s software being sunsetted. The motivation is very different when a large technology firm acquires an AML vendor; typically
the large firm wishes to offer the AML bit as part of a larger suite of services which they can market to their extensive client bases.
20
Copyright 2011 © Celent, a division of Oliver Wyman, Inc.
Table 2: Consolidation in the AML Market, by Acquiring Firm Type
General Technology
Firms
FSI Software / Services
Buyer
Target
Year
Oracle (i-flex solutions)
Mantas
2006
Nice
Actimize
2007
Oracle
Datanomic
2011
BAE Systems
Norkom
2011
Wolters Kluwer Financial Services
Atchley Systems
2003
LexisNexis (ChoicePoint)
Bridger Systems
2003
Experian
Americas Software
2004
Lombard Risk Management
STB Systems
2005
FIS (Metavante)
Prime Associates
2005
Fiserv
NetEconomy
2007
Thomson Reuters
Complinet
2010
Thomson Reuters
Northland Solutions
2011
Nice Actimize
Fortent
2009
Warburg Pincus
Searchspace (Fortent)
2005
Esprit Capital Partners
NetEconomy
2005
AML Specialists
Private Equity
Source: Celent
In such cases, rather than obsolescence the acquisition will more likely
mean the long-term viability of the software. In addition to providing
an attractive exit strategy for the vendor’s shareholders, acquisition by
a large technology firm may substantially enlarge the potential client
base / pipeline for the product. It may provide a new lease on life for
more basic AML packages, making them more attractive as part of the
more extensive service package of the large vendor.
From an industry perspective, consolidation of AML vendors may spur
innovation and change in the industry, not from the start-up grass
roots (which is already occurring, as will be shown in the upcoming
Celent report on specialist AML technology providers), but from the top
down. A large technology firm may invest in adding new functionality,
for example by adding anti-fraud capability to create an enterprisewide
compliance package. The trend is also driving an increase in outsourced AML services for small to medium sized banks. For example,
large core banking processors such as FIS and Fiserv are providing their
acquired AML software offerings on an ASP basis to their core processing clients.
Copyright 2011 © Celent, a division of Oliver Wyman, Inc.
21
This trend to consolidation is important to financial institutions
because it means that today's AML vendors will be around tomorrow,
and they can count on continued support for their products. Rather
than being a sign of weakness in the industry, the ongoing consolidation indicates the AML software market is entering a stage of maturity.
Firms that may have been shaky on their own will be all the more stable with these deep-pocketed owners behind them. Overall, Celent
sees this as a positive, not negative, trend for the AML software
industry.
22
Copyright 2011 © Celent, a division of Oliver Wyman, Inc.
Evolution in AML Technology
The ongoing evolution of AML compliance requirements and the development of best practices within bank’s compliance organizations,
along with a crowded AML software market, is driving AML vendors to
continue to upgrade their offerings with new functionality and
improved look-and-feel and usability. Celent has always held that the
most crucial element in AML technology is effective case management,
and many of these enhancements involve case management or user
interface functionality.
Table 3: AML technology product enhancements
Compliance suites
Technology
Usability
Analytics / scenarios
KYC / CDD
Real-time processing
Browser-based delivery
Anti-fraud scenarios
Transaction monitoring
Multi-channel capability
Navigability
Channel-specific scenarios
Anti-fraud
Scalability: users
Data slice-and-dice
LoB-specific scenarios
Watchlist screening
Performance: throughput
Configurability
Advanced analytics
Visualization tools
Neural networks,
Bayesian learning
Case management
Source: Celent
Recent product enhancements by vendors have focused on the following areas (see Table 3 on page 23).
„ End-to-end compliance suites. Vendors that previously
offered single-purpose systems such as transaction monitoring or watchlist filtering have been adding modules including
KYC, various types of fraud including insider fraud, and case
management and reporting, in order to provide end-to-end
AML compliance functionality.
„ Real-time processing. AML transaction monitoring has tradi-
tionally been a process of investigating past activity for
suspicious behavior; as such monitoring transactions in
batch mode was sufficient. As AML vendors expand into
anti-fraud, real-time monitoring capabilities become necessary in order to prevent or minimize remote channel fraud
such as online / ACH fraud and ATM fraud.
Copyright 2011 © Celent, a division of Oliver Wyman, Inc.
23
„ Multi-channel capability. For AML as well as anti-fraud,
there is a growing need to monitor transactions through
remote channels, and ideally to analyze transactions across
these multiple channels in an integrated fashion. In
response, vendors are enhancing multi-channel capabilities,
including the development of specific scenarios designed to
uncover suspicious activity specific to a channel (for example, common point of compromise for ATMs).
„ Scalability. Vendors with products perceived as less scalable
have been seeking to increase the through-put, performance
and scalability of their software in order to better compete
for business from the larger financial institutions.
„ Look and feel. Up to a few years ago many AML systems
were thick-client applications, although in some cases Javabased. To simplify version upgrades, facilitate enterprisewide
distribution and support ASP or SaaS delivery, vendors have
been migrating AML software to browser-based versions.
Visual clarity and presentation has also been a focus.
„ Navigability. In response to FI demands for more effective
and efficient case management tools, vendors have been
enhancing their systems with improved workflow and navigability. This includes alert drill-down, data sorting, and
other data “slice-and-dice” capability. To overcome the
latency introduced by moving to browser-based systems,
some vendors are introducing Ajax and other web technologies to minimize delays caused by screen-refresh time.
„ Improved configurability. Five years ago, AML interfaces
tended to be coded and modifications required development
by the vendor or at best an institution’s internal IT team.
Since that time, the configurability of many products has
improved significantly. Administrator-configurable features
include access and permissions, as well as some aspects of
workflow such as email notifications and analyst queues.
Features configurable by the business analyst (or other
authorized user) include thresholds and parameters for
rules, ad hoc rules, and scheduled queries. The more
advanced products provide the ability to configure screens to
present data tables in the desired format.
„ Visualization tools. A common gap in AML products is
robust visualization to facilitate the rapid comprehension of
complex data and patterns by analysts as well as compliance
officers. Vendors have been enhancing their visualization
tools by providing richer sets of data graphs, including graph-
24
Copyright 2011 © Celent, a division of Oliver Wyman, Inc.
ing for compliance dashboards, and interactive graphics with
drill-down functionality to display the results of a network
analysis.
„ Advanced analytics and scenarios. While business rules are
still the most commonly used type of analytics in AML, more
vendors are developing sophisticated capabilities such as
historical profiling and network analysis, as well as advanced
analytics such as neural networks and Bayesian learning.
Most vendors continue to develop new scenarios, including
AML scenarios for specific lines of business and scenarios to
detect various types of fraud.
Copyright 2011 © Celent, a division of Oliver Wyman, Inc.
25
Enterprisewide Compliance
Over the years, financial institutions have tended to implement separate AML solutions for each of their major business lines. These AML
systems typically have been installed at different times, in accordance
with regulators’ timelines for the various financial services segments.
As a result, disparate systems may be used in each of the business
lines, such as retail, corporate and private banking, and retail and institutional brokerage. In addition, AML operations are often similarly
siloed. For FIs operating in multiple geographies, operations and software may also differ for each jurisdiction.
These multiple systems and operational units create a substantial
challenge in terms of management and of course costs. More importantly in terms of compliance, because AML efforts are siloed by
business unit and geography, it is difficult for the institution to obtain
an integrated view of AML risk across the entire enterprise. Moreover,
this in turn makes it hard to manage and improve AML compliance
efforts across the firm.
Financial institutions have also typically run their AML programs separately from their anti-fraud efforts—even though the technology and
operational approaches required for AML and anti-fraud are similar in
many respects—further complicating the management and costs of
operations focused on financial crime.
In order to reduce the complexity and cost of operations, as well as
improve the efficacy of compliance efforts, in recent years a number of
financial institutions have been consolidating their disparate AML
platforms, and in some cases their anti-fraud platforms. Elements of
this enterprisewide compliance approach include:
„ Reorganizing siloed AML units into a centralized AML com-
pliance department.
„ Consolidating multiple AML systems onto fewer, or even one,
technology platforms.
„ Integrating AML and anti-fraud operations and technology.
Most of the effort to date has focused on consolidating AML operations
and technology, both across business units and across geographies.
Some larger banks have chosen a preferred AML vendor and are progressively moving AML at multiple business units onto their preferred
Copyright 2011 © Celent, a division of Oliver Wyman, Inc.
26
platform. In terms of regional standardization, multinational banks
such as Citi, HSBC and Standard Chartered have been working to standardize AML technology across the dozens of countries in which they
operate. Due to the specific requirements of different lines of business
on the one hand, and local compliance requirements in each jurisdiction, total consolidation will remain an elusive goal. Nevertheless,
some financial institutions have made significant headway in this
direction.
More interesting in terms of the potential benefits for a firm’s overall
financial crime operations is combining anti-fraud with AML, which
will be explored in the next section.
Integrating Anti-Fraud and AML: The Holy Grail
Financial institutions are overloaded with a panoply of onerous and
expensive compliance regulations, from Basel II and III to IFRS to BCP.
The AML programs required by regulators in the US and many other
countries are a particular headache. As described above, banks have
invested hundreds of millions of dollars in AML technology alone, not
to mention the personnel costs for the compliance teams, front-office
staff training, reporting and other functions. The outsized compliance
burden for AML has got banks to thinking about ways they can leverage
their investment in AML systems and operations. As Celent has argued
since our first report on AML trends in 2002, one way forward could be
to integrate their AML and anti-fraud efforts. Over the past few years,
banks have at last started to move in this direction to build an enterprisewide compliance framework for financial crime.
While banks fret over the burden of AML compliance, at the same time
they invest in and build anti-fraud systems—which are not much different in kind than AML systems—quite willingly. This is of course
because banks have a natural interest in preventing people from stealing money from them or their customers. In other words, anti-fraud is
a business activity, with direct benefits to a bank's bottom line. By
combining anti-fraud and AML systems, therefore, banks can potentially get a business benefit from the “AML burden.”
Software vendors have for some years promoted the idea of using one
technology platform for both AML and anti-fraud. In particular, a number of the larger AML vendors have developed anti-fraud products
using their core behavior detection technologies (see Table 4 on page
28). This potentially holds out the promise of a sort of compliance holy
grail: leveraging the compliance investment in AML for their anti-fraud
efforts, thus producing some tangible business return from the invest-
Copyright 2011 © Celent, a division of Oliver Wyman, Inc.
27
ment. Some of the more forward-looking banks have started to take
advantage of this to simplify their compliance and fraud systems and,
potentially, lower costs.
Table 4: Typical Anti-Fraud Product Offerings of AML Vendors
Channel Fraud
Sector Fraud
Internal Fraud
ATM fraud
Card fraud
Internal fraud
Check fraud
Insurance fraud
Broker compliance / market
abuse
Online fraud
Red flags
Payments / ACH fraud
Source: Celent
Using AML technology for anti-fraud can be daunting though. It is not
simply a case of writing new business rules in the software to cover
anti-fraud. Anti-fraud often involves additional functionality, such as
real-time transaction monitoring (AML typically makes do with monitoring on a batch basis), additional data feeds, and of course getting
multiple business lines to agree to use a common system.
Because until recently there has been little uptake by financial institutions of the anti-fraud modules to date, and vendors may use their first
implementations of a product as a means of fully developing its functionality (transforming it from vaporware to a real product), the antifraud capabilities of some vendors might not be all they claim to be
when you look under the hood. As more financial institutions move
towards an enterprisewide compliance approach combining AML and
fraud, this will drive further development in AML vendors’ anti-fraud
capabilities, much as the many AML implementations of the past
decade contributed to the evolution of AML technology.
The Case for Enterprisewide Compliance
The benefits of consolidating multiple AML programs onto one platform is straightforward: reducing duplication of technology and
operations can reduce costs, create efficiencies, and provide an enterprisewide view of AML risk.
Although intuitively attractive, many institutions may find it more difficult to build a business case for integrating AML with anti-fraud.
While AML compliance is a cost center, anti-fraud is a business activity
that generates a direct benefit to a firm’s bottom line by reducing
financial losses due to fraud. Anti-fraud departments may then quite
reasonably resist being tied in with the AML albatross. Therefore, getting buy-in from a firm’s executive management is crucial.
28
Copyright 2011 © Celent, a division of Oliver Wyman, Inc.
The most direct business case for integrating anti-fraud and AML is
demonstrating that putting anti-fraud onto a new technology platform
will enable an increase in the dollar amount of fraud that is prevented
due to this new technology. Fortunately, the compliance-driven development of modern AML software, analytics and case management has
created a new generation technology that can often deliver better
results than legacy anti-fraud systems. This is the reason why enterprisewide compliance initiatives often replace legacy anti-fraud
systems with the anti-fraud products of the AML vendors, rather than
vice versa. An incremental improvement in fraud reduction of even
five to ten per cent may be enough to build the case for moving antifraud onto the AML platform.
Table 5: Drivers and Barriers for Enterprisewide Compliance
Drivers
Barriers
Consolidation increases efficiency and efficacy
Siloed business lines and channels
Anti-fraud generates ROI to offset AML
compliance costs
Cost of replacing legacy systems
Enterprisewide data management can also
support business needs
Difficulty of data management needed to support
enterprisewide compliance
Real-time monitoring for fraud also
enhances AML
Anti-fraud requires additional functionality
Regulators taking holistic view of fraud and
ML
Buy-in from fraud division may be elusive
Source: Celent
In addition to this ROI argument, integrating anti-fraud and AML can
provide a number of other benefits:
„ The data management work needed to implement enter-
prisewide compliance can also support business needs,
including analytical CRM, customer profitability analysis and
risk management.
„ The real-time monitoring capability necessary for anti-fraud
can strengthen AML efforts as well (AML monitoring has typically been carried out on a batch basis).
„ Regulators have started to include anti-fraud within their
purview, due not only to the simple fact that fraud generates
illicit gains, but also to the discovery of links between fraud
and money laundering activities. As anti-fraud itself
Copyright 2011 © Celent, a division of Oliver Wyman, Inc.
29
becomes an AML compliance issue, regulators will expect
financial institutions to develop integrated approaches covering AML and anti-fraud.
„ Due to this link between fraud and money laundering activi-
ties, investigating both types of activity on a common case
management platform may reveal suspicious patterns of
activity that would otherwise remain hidden.
Although enterprisewide compliance makes sense, there are a number
of barriers that can lead financial institutions to reasonably reject this
approach.
„ Siloed business lines and channels can prevent adoption of a
common operational or technology platform for organizational, cost or political reasons.
„ Cost of ripping out existing solutions can be prohibitive.
„ Data management and sourcing data from multiple back-end
systems can be a major undertaking.
„ Using AML technology for anti-fraud is not simply a case of
writing new business rules, but often involves additional
functionality, such as real-time transaction monitoring and
additional data feeds
As a result, some firms will continue to take a siloed approach to AML
and anti-fraud, both by business line (retail, corporate and private
banking; cards; retail and institutional securities, insurance) as well as
by system module (transaction monitoring, analytics, watchlist filtering, case management, reporting). While this best-of-breed approach is
a viable technology choice, it will reduce the opportunity to realize efficiencies through implementation of one (or at least fewer),
standardized platform.
Centralized Case Management as a First Step to
Enterprisewide Compliance
Despite the logical elegance of the enterprisewide compliance
approach, especially at larger institutions it is a complex, expensive
initiative with far-reaching systems and organizational implications.
At the same time, as C-level management becomes increasingly
involved in AML efforts, executives are asking for an easy-to-access,
enterprisewide view of risk. This is driving a need for compliance dashboards, presenting a one-screen view of a firm's activities and
exposure across the enterprise.
30
Copyright 2011 © Celent, a division of Oliver Wyman, Inc.
For these reasons, an effective, concrete first step to consolidating AML
compliance across business lines and channels, as well as integrating
technology for AML and anti-fraud, is implementing an “enterprise
risk” dashboard, which can provide a business intelligence-driven view
of AML and fraud indicators across the enterprise. The dashboard can
be used by upper management, such as a Chief Risk Officer, to monitor
risk levels and performance of compliance and anti-fraud departments. Enterprise risk dashboards can also support centralized
internal and external reporting.
A number of institutions have had some form of risk dashboard in
place for some years. In its most developed form, however, an enterprise risk module will be a full-fledged case management system that
consolidates the output of siloed AML and / or anti-fraud systems into
a central, enterprisewide case management system to allow investigation of cases by a similarly centralized analyst operation. This enables
the investigation of schemes involving the products of multiple business lines and channels, and that cross the boundaries of money
laundering and fraud.
Enterprisewide case management requires access to clean, reliable
data from a firm's siloed business lines, which involves considerable
effort, time and expense. To date, relatively few financial institutions
have managed to implement enterprisewide case management, making this a ripe area for future development.
Internal Fraud
Financial institutions are also seeking ways to grapple with internal
fraud, which requires a somewhat different technology approach than
external fraud or AML. For example, internal fraud software needs to
analyze access logs on employee computers to see what systems they
are looking at and when. Sniffing technology can be employed to
record employees’ activity on internal systems, keystroke by keystroke.
On the case management side, audit trails will be designed not just to
check analyst’s productivity, but also possible collusion with money
laundering through, for example, putting a customer on the bank’s
“good guy” list. Because insider fraud may involve paper-based material such as contracts, it is less amenable to purely analytic
technologies, and the software is at an earlier stage of evolution than
for AML. Vendors have only been providing solutions aimed at insider
fraud for the past several years.
Copyright 2011 © Celent, a division of Oliver Wyman, Inc.
31
Expansion of AML Markets
Far from going away as a concern for financial institutions, AML compliance continues to expand, across financial segments, industry tiers,
and geographies.
Small Banking
In terms of industry tiers, while the initial focus after passage of the
USA PATRIOT Act was on larger financial institutions, over the past
several years regulators in the US have been getting tougher on smaller
institutions. In particular, community banks and credit unions are
under scrutiny to implement more effective AML technology. AML software vendors have responded by offering versions of their product
tailored to the needs of smaller institutions. Typically these packages
are essentially not customizable and include a smaller set of scenarios
and functionality. Core processors such as Fiserv and FIS are offering
AML on an ASP basis to their existing client base. New entrants such as
Verafin are also offering products aimed primarily at the small bank
market.
In just the past few years, some of these firms have already achieved
significant uptake in the small banking market, with clients numbering in the hundreds. Given the large number of banking institutions in
Copyright 2011 © Celent, a division of Oliver Wyman, Inc.
32
the US, continued growth can be expected in this sector for some time
to come. Celent projects that spending by small banks in the US will
reach US$28 million in 2013 (see Figure 14 on page 33).
Figure 14: AML Spending Trends: Small Banks
AML s oftware s pending
(US banks under US$1 bn in assets)
30
USD mn
25
20
15
24
10
5
14
16
28
18
0
2009
2010
2011
2012
2013
Source: Celent
Insurance AML
The AML needs of insurance firms have not been as great as in the
banking and brokerage sectors. This is partly because “transactions” at
insurance firms—policy applications, claims and payouts—are generally on multi-day batch cycles, so there is more time to analyze and
investigate them for suspicious activity. Regulators have also seen less
risk for money laundering in the insurance sector, and so have not
come down as hard on it. As a result, insurance firms have felt more
comfortable implementing simpler solutions, and often building them
inhouse.
In recent years, however, more insurers have felt the need to implement world-class AML technology. In the US, this has been driven by an
increased focus by regulators on insurance as a vehicle for money
laundering. The growth of online insurance sales has been another
driver, due to the easy access the online channel provides for money
laundering, as well as fraud. In addition, the faster cycle times of
online insurance sales, often delivering instant decisioning, is creating
a need for automated due diligence and AML checks.
Copyright 2011 © Celent, a division of Oliver Wyman, Inc.
33
Nonbank Financial Services
Non-banks have also been busy implementing AML technology. The
large money services companies have some of the largest AML software implementations, spanning multiple operations around the globe
in order to control risk for cross-border remittances as well as domestic
business.
The growth of online alternative financial services such as P2P payments and social lending is also creating a new market for AML
software. Some of these firms facilitate very large numbers of transactions, for virtually any counterparty. The lack of a traditional KYC
process in the online channel makes screening of client and counterparty names against watchlists crucial for achieving AML compliance.
In addition, firms are implementing transaction monitoring with analytics tailored to their business to look for potential abuse of the
system.
Regional Markets
The USA PATRIOT Act ushered in a new era of AML compliance, not
just in the US but globally. US compliance approaches have had a ripple
effect in jurisdictions ranging from the Euro zone and UK, to the Middle
East, Africa and Asia-Pacific. In these new jurisdictions, regulators will
often first focus on the implementation of watchlist screening capability, particularly for cross-border wires due to sensitivity to the US’
attention to overseas correspondent banks’ AML and counter-terrorist
funding programs. Transaction monitoring will typically be implemented at a later stage.
This process is currently underway in, for example, Asia Pacific, as can
be seen by the differing degrees of regulatory focus on compliance and
implementation of AML technology in each jurisdiction in that region
(see Figure 15 on page 35). The fact that many of the countries in AsiaPacific are still in the early stages of AML compliance regulation sug-
34
Copyright 2011 © Celent, a division of Oliver Wyman, Inc.
gests that this region will see the highest growth in AML software
spending in the medium term, as described in the AML Technology
Spending section.
Figure 15: AML Adoption in Asia-Pacific
Source: Celent
Copyright 2011 © Celent, a division of Oliver Wyman, Inc.
35
AML by ASP
Outsourcing of AML operations and technology is still in early days.
Large banks in the US have been generally unwilling to outsource their
AML operations due to security concerns. In addition, larger institutions are more likely to keep their technology inhouse, and so with
their AML software. In the US, the past few years have seen core processors such as FIS and Fiserv and identity verification service
providers such as LexisNexis and Experian acquire transaction monitoring or watchlist screening software vendors. These firms are
targeting these outsourced AML services mainly at small banks, particularly but not exclusively banks who already use their services. Such
firms have hundreds or thousands of such customers, providing a large
potential client base for the AML products. The capabilities of these
products tends to be fairly basic when compared to the industry stateof-the-art technology, but for small to medium sized banks this is often
sufficient. Fiserv has been providing AML services as part of its outsourcing arrangements for some time and probably has the most
experience in this area.
Compliance processes such as customer due diligence may be more
difficult to justify to regulators and hence more difficult to outsource to
a business process outsourcing (BPO) provider. And certainly AML can
be a more sensitive area than commoditized back-system operations.
Nevertheless, major BPO providers such as Infosys are providing support for AML operations. In addition, a number of new specialist firms
are offering outsourced AML services. In the US, for example, AML
RightSource offers managed services for transaction monitoring / analysis, customer due diligence and watchlist screening. In Europe,
KYCnet provides customer due diligence for corporate clients as well
as for compliance review purposes. In the area of watchlist screening,
Thomson Reuters’ Complinet provides an ASP service as well as an
Internet-based delivery channel. Innovative Internet-based models
have also emerged to assist with negative media as well as KYC issues;
examples include KYC360 and NetBreeze.
Copyright 2011 © Celent, a division of Oliver Wyman, Inc.
36
Conclusions
AML compliance presents financial institutions with a unique set of
challenges in terms of operations, technology and enterprisewide
management. The substantial and ongoing costs associated with
achieving compliance also make it important for firms to seek efficiencies in operational and technology costs, without sacrificing the
efficacy of their AML programs.
Increasingly, financial institutions are responding to these challenges
by adopting elements of an enterprisewide compliance approach, with
the ultimate—and quite long-term—goal of integrating their AML and
anti-fraud operations and technologies across business silos and, for
multinational firms, geographical regions.
No matter what their size, financial institutions embarking on this
journey will need to carefully assess the vendor solutions that can
assist them. Aside from the vendor’s ability to deliver on implementation and after service, the three main areas institutions will want to
evaluate are scalability, sophistication of analytics, and case management capabilities. Needs in these areas will differ according to the size
of the institution, business line, and existing solutions and compliance
procedures already in place. Smaller institutions may not need, or even
be able to effectively use, a very advanced solution, whereas top tier
institutions may require sophisticated data mining and analytics just
to keep track of their large volumes of transactions and accounts. Institutions will know their own scalability needs, but should be careful to
perform due diligence on the claims made by vendors.
Once a solution meets the institution's analytics and scalability
requirements, strong case management functionality is crucial. The
biggest headache compliance departments face is how to sift through
the voluminous alerts generated by AML systems, divvy them up
among their analysts, and investigate them effectively. These difficulties will be amplified when anti-fraud and AML are placed on the same
platform, making strong case management capabilities even more
urgent.
Building the business case for an enterprisewide approach to compliance is not easy. To justify the investment, compliance officers will
need to gather evidence from case studies of other financial institutions that the new anti-fraud products of AML vendors are effective
Copyright 2011 © Celent, a division of Oliver Wyman, Inc.
37
and can produce incremental improvements in loss prevention enough
to create an ROI. Top management and board buy-in to the initiative is
important in overcoming political divisions and resistance from siloed
P&Ls. Finally, a phased roadmap, perhaps starting with a centralized
case management system to unite disparate legacy AML and anti-fraud
systems, will help provide a workable and achievable blueprint for the
journey towards enterprisewide compliance.
38
Copyright 2011 © Celent, a division of Oliver Wyman, Inc.
Leveraging Celent’s Expertise
If you found this report valuable, you might consider engaging with
Celent for custom analysis and research. Our collective experience and
the knowledge we gained while working on this report can help you
streamline the creation, refinement, or execution of your strategies.
Support for Financial Institutions
Typical projects we support related to anti-money laundering technology include:
Vendor short listing and selection. We perform discovery specific to
you and your business to better understand your unique needs. We
then create and administer a custom RFI to selected vendors to assist
you in making rapid and accurate vendor choices.
Business practice evaluations. We spend time evaluating your business processes. Based on our knowledge of the market, we identify
potential process or technology constraints and provide clear insights
that will help you implement industry best practices.
IT and business strategy creation. We collect perspectives from your
executive team, your front line business and IT staff, and your customers. We then analyze your current position, institutional capabilities,
and technology against your goals. If necessary, we help you reformulate your technology and business plans to address short-term and
long-term needs.
Support for Vendors
We provide services that help you refine your product and service
offerings. Examples include:
Product and service strategy evaluation. We help you assess your market position in terms of functionality, technology, and services. Our
strategy workshops will help you target the right customers and map
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Market messaging and collateral review. Based on our extensive experience with your potential clients, we assess your marketing and sales
materials—including your website and any collateral.
Copyright 2011 © Celent, a division of Oliver Wyman, Inc.
39
Related Celent Research
IT Spending in Financial Services: A Global Perspective
Jacob Jegher
Enterprise Operational Risk, Compliance, and Governance Solutions:
Towards a Convergence End Game
Cubillas Ding
Internal Fraud: Big Brother Needs New Glasses
Jacob Jegher
Insurance Fraud Mitigation Technology: Beyond Red Flags
Donald Light
Copyright 2011 © Celent, a division of Oliver Wyman, Inc.
40
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