Large FIs spent $25M rolling out failed risk management frameworks during the 2000’s. So why try again?

Large FIs spent $25M rolling out failed risk management frameworks during the 2000’s. So why try again?
Large financial institutions spent in excess of $25 million on rolling out failed enterprise risk management frameworks during the 2000’s. So why try again? Well for many obvious reasons, the most notable of which has been the large scale failure of institutions to manage their risks and the well-editorialized consequences of those failures. The scale of fines for misconduct across financial services is staggering and damage to the banking industry’s reputation will be long-lasting. Major Control Failures in Financial Services blog Source: publicly available data Regulators and supervisors are determined to stop and reverse these risk failures, specifically, the poor behavior of many bankers. Regulators are demanding that the Board and executive management take full accountability for securing their institutions. And there is no room for failure. This is the only way that risks can be understood and, hence, managed across the enterprise. There is no denying that risk management frameworks are hard to implement but Celent believes the timing is right for the industry to not only secure their institutions and businesses but to innovate more safely and, slowly, win back the trust of their customers. My recently published report Governing Risk: A Top-Down Approach to Achieving Integrated Risk Management, offers a risk management taxonomy and governance framework that enables financial institution to address the myriad of risks it faces in a prioritized, structured and holistic way. It shows how strong governance by the Board is the foundation for a framework that delivers cohesive guidance, policies, procedures, and controls functions that align your firm’s risk appetite to returns and capital allocation decisions.

Integrating Fraud and AML: The Holy Grail of Compliance?

Integrating Fraud and AML: The Holy Grail of Compliance?
Financial institutions are overloaded with a panoply of onerous and expensive compliance regulations, from Basel II to IAS to BCP (one might also mention an overload of acronyms). The anti-money laundering (AML) programs required by regulators in the US and many other countries is a particular headache. Banks have invested many millions of dollars in AML technology alone, not to mention the personnel costs for the compliance teams and front-office staff training. Naturally, this has got banks to thinking about ways they can leverage this investment in compliance. One way forward could be to integrate their AML and anti-fraud efforts.

Banks complain a lot about the burden of AML compliance. But at the same time, they invest in and build anti-fraud systems (really not much different in kind than AML systems) quite willingly, since they naturally want to stop people from stealing money from them. 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 could potentially get a business benefit from the “AML burden.” Indeed, a number of banks are moving in this direction, beginning with combining their faud and AML departments. A smaller number have started to integrate the technology systems as well.

Software vendors have for some years promoted the idea of using one technology platform (theirs, of course) 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. This potentially holds out the promise for banks of a sort of compliance holy grail: leveraging the compliance investment in AML for their anti-fraud efforts, and producing some tangible business results from the investment.