To overhaul financial crime prevention, make process excellence the priority
08 February, 2022
After several years during which budgets and headcounts devoted to preventing financial crime have ballooned, executives at banks and other institutions around the world are starting to ask what they are getting in exchange for the time and money invested.
The answer is usually disappointing, leading to a renewed push to revamp compliance efforts – this time, with a focus on productivity rather than scale.
Since the global financial crisis of 2008, financial institutions are generally in a better position in terms of compliance and risk coverage – and it’s thanks to all that investment. Moreover, in a regulatory function, the question managers have to ask is not whether they can make do with less compliance, rather, what they are paying to achieve current levels, and whether they could get the same result – or better – with lower costs.
Based on PwC experience, the majority of financial institutions have engaged in some sort of transformation journey focused on their financial-crime models. A successful approach taken by some of PwC clients is process excellence-driven, rather than focusing on just adding resources to deal with their financial crime compliance challenges.
From 2015 to 2021, global costs of compliance leapt by 64% to $227 billion[1]; banks, insurers, fintechs and other institutions are now spending between 1.3% and 2.5%[2] of annual revenue on preventing fighting financial crime. While at least some of that increase was certainly necessary in response to rising pressure from regulators, the law of diminishing returns has kicked in, and it is now clear that just allocating more money to the problem is not going to help. For example, despite the huge costs financial institutions are bearing, technology-enabled monitoring produces on average 90% or more false positive alerts. In some cases the figure is as high as 99%[3].
So just ramping up spending is not the answer. Another common mistake – and an understandable one – is to focus on technology first. Better technology certainly has a crucial role to play, but it is an enabler of transformation, not the main driving force.
Instead, institutions need to review and renew their processes from the ground up, looking at processes through a productivity lens. Doing so will allow institutions to prioritise the interventions and actions that will help move toward process excellence.
In PwC’s work with clients, we see four ways in which organisations can create value opportunities in their financial crime prevention operations:
1. Revisit the operating model. Improving productivity starts with mapping out what work gets performed, where, and how. This requires looking at four macro processes: the set of regulatory standards that define the process; the data sources feeding into it; the outputs; and the core workflow that manages the process. Each of these needs to be analysed and optimised.
2. Build a continuous improvement capability. PwC’s research indicates that fewer than half of all performance improvement initiatives achieve their goals. To make changes last, organisations need to take a dynamic approach. That means continuously gathering data, looking at performance indicators and outcomes of financial crime compliance processes, and using that knowledge as the basis for adjusting the resources and enhancement investments.
3. Define and measure. Define each process and micro-process, and set up ways to measure them, focusing on dimensions including risk mitigation, effort, time, friction points, volume, added value, client experience and quality. Only then will financial institutions be able to compare your performance with standards and best practices, and to set priorities for where improvement is most urgently needed.
4. Embrace analytics. Setting out to simply replace incumbent technologies without first attempting to measure their performance, and improve it if possible, can lead to wasted effort. Some of the leading financial institutions have taken a more centralised approach, creating hubs for data science and adopting analytical tools that help them address performance challenges. This allows them to zero in on what impact productivity levers are having, which lets them increase risk coverage and decrease inefficiencies.
Based on these four principles, PwC has set up a framework to measure, analyse and apply insights to financial crime processes, allowing us to deliver customised, multidimensional solutions for our clients, which include managed services. PwC takes a data-led approach, using our proprietary analytics tools to perform benchmarking and qualitative assessment across anti-financial crime operations, which identifies the areas where changes are expected to deliver the greatest impact. We also use our experience from delivering financial crime operation services for our clients.
This evolves into a data analytics enabled, quantitative assessment of those areas that may yield the greatest benefits, linking actions to impact. The final step is to design change programmes that focus on the levers of productivity, boosting overall effectiveness and efficiency.
Financial crime controls are increasingly interconnected, and achieve peak performance only when they are coordinated, managed and measured. By using ongoing effectiveness monitoring, improving process flow, implementing digital tools and employing technology to prevent financial crime we help organisations increase productivity in this area.
If you and your organisation have reached the point where adding resources to the fight against financial crime is not improving results, get in touch to find out how PwC can help reimagine your operation with a focus on delivering process excellence and achieving excellence in outcomes.
[1] Global True Cost of Compliance 2020, LexisNexis Source: LexisNexis Cost of Compliance Report and PwC insights
[2] As above
[3] As above
