Reducing financial crime compliance costs

Banks, insurers and other institutions are facing intensified regulatory scrutiny of their financial crime risk management programs. Many financial institutions that believed their processes were sufficiently robust are realizing their operations no longer align with regulatory requirements—or never did.

This growing regulatory burden compels institutions to prevent, detect and investigate financial crime more efficiently and effectively. But many financial services companies find putting these principles into practice challenging: just 45% of the industry’s respondents to our Global Risk Survey say they’ve achieved more robust compliance with regulatory standards over the past year.

This leaves companies exposed to potential compliance failures, regulatory risks and monetary penalties. Some try to address these challenges by outsourcing work to specialized third-party providers. But they’re realizing they need more than traditional business process outsourcing and staff augmentation to operate these functions effectively.

That’s why other institutions are taking a different approach. They’re modernizing their operating models, processes and digital solutions using outcomes-based financial crime managed services. In doing so, they’re managing financial crime risks with greater efficiency and effectiveness and unlocking new opportunities to enhance their clients’ experiences.

A more strategic approach to financial crime managed services

The inefficiency of many institutions’ financial crime operations often leads to spiraling costs and mounting backlogs of various operations-focused anti-money laundering (AML) program elements such as know-your-customer (KYC) verifications, transaction monitoring alerts and potential fraud cases requiring investigation, among other items.

Managed services help institutions reduce costs and operate more effectively. Reinventing how work gets done can create value, reduce costs and help your people be more productive and do their core jobs well. Companies that think more strategically about managed services can also gain access to expertise, knowledge and technology assets that accelerate their strategic outcomes.

We see financial institutions using managed services in different ways. Initially, companies often focus on cost savings by using more productive and cost-effective external resources. As they progress, organizations can further reduce their operating expenses through evolved operating models that use outcomes-based service level agreements, appropriately aligned levels of oversight and a combination of onshore and offshore talent.

More sophisticated financial institutions achieve further savings and sustained efficiencies by closing capability gaps and implementing process improvements through managed services. For example, within KYC procedures, this includes digging into traditionally slow outreach management processes and using rules and customer profile process standardization methodologies to expedite the most cumbersome portions of KYC verification.

The most advanced organizations pursue strategic advantage by integrating technologies such as proven analytics tools, accelerators and automations into their managed services. These include document inspectors, case preparation bots, workflow orchestrators, automated quality checkers and compliance reporting tools, among others.

How financial institutions are using managed services

We’ve seen powerful outcomes as organizations take these steps toward more strategic managed services relationships. For example, we’ve been engaged by several North American financial institutions that struggled with traditional operations challenges: eroding work quality, lagging productivity and lengthy client onboarding timelines. Many of these organizations initially bolstered their internal quality control resources to better oversee and manage staff augmentation and outsourced teams. But this only added time and complexity to their financial crime operations tasks.

When helping these organizations, we leaned into our ability to use hybrid delivery models composed of onshore and offshore resources and brought in multidisciplinary advisory teams to pinpoint and implement process improvements. This can include crafting standard operating procedures, enhancing governance for the approvals process and uncovering additional opportunities for cost savings.

This combination of capabilities helped these financial institutions rethink the operation, delivery and oversight of their financial crime programs—shifting their focus from managing people to managing outcomes.

Backlogs are an opportunity—not just a cost

Financial institutions often view the clearance of backlogs as a sunk cost. This makes it tempting to think about a backlog as a one-time issue that simply requires more resources to clear. But this approach doesn’t address the underlying factors that generated the backlog in the first place—and can in fact lead to it reemerging again.

We see backlogs as an opportunity. Backlogs can provide valuable insights into eventual business-as-usual implementations in the form of:

■ operational improvements focused on workforce efficiency

■ using the static nature of the backlog data set to pinpoint poor rule coverage and/or ineffective rules that lead to large numbers of false positives

■ strategic approaches to prioritizing the backlog that can be applied in ongoing operations (e.g., alert grouping)

Steps to accelerate your strategic outcomes

Gaining a strategic advantage through financial crime managed services begins with thinking differently about your compliance challenges. Here’s where to start:

Define your desired outcomes. This could include completed KYC files, adjudicated fraud alerts, completed fraud investigations or other deliverables. Establishing this focus lets you move away from hourly rates and toward a unit-based pricing model that shifts delivery risks to your managed services provider.
Map your current processes. Documenting your procedures, including your quality framework, helps your managed services provider understand how you want your work carried out. It also creates opportunities to spot opportunities for process improvements, such as implementing automations and other digital tools.
Estimate your operating expenses. A clear understanding of the size and cost of your financial crime function helps you accurately evaluate a managed services business case.
Prepare for emerging technologies. Generative artificial intelligence (GenAI) and other digital tools hold incredible potential to transform financial crime risk management programs. But first, institutions need to develop governance models and responsible AI frameworks that build trust in their handling of client data.

Enhancing efficiency, effectiveness and client experiences

Institutions that embrace financial crime managed services can operate more efficiently, reducing costs and alleviating management’s responsibility for the direct oversight of large teams of employees and contractors. This lets them focus on higher-value tasks, such as collaborating with customer analytics teams to pinpoint opportunities for revenue expansion or emerging risks.

In many use cases, it also frees employees to spend more time on direct-contact client tasks, such as accelerating onboarding processes and enhancing customer experiences. They can also devote more time to screening for new threats, improving the effectiveness of their financial crime risk management program.

Collectively, these changes help institutions meet their compliance obligations and adapt to business changes, evolving risks and regulations, and technological disruption. It also helps prevent financial crime from occurring in the first place—reducing monetary losses while bolstering national security, economic stability and public trust in financial institutions.