Successfully Balancing Quality and Efficiency
31 January, 2022
There has been a continual increase in scrutiny from regulators into how financial institutions are mitigating Anti Money Laundering (AML) risks through their risk policy and quality framework. In working to meet regulatory expectations some financial institutions are concerned that implementing robust quality controls may lead to cost increases as well as negative impact on the customer experience.
Each organisation needs to find its own unique balance; there is always a delicate equilibrium point that achieves both having sufficient quality controls whilst maintaining an efficient process. Having onerous controls may create a structure that increases costs and leads to stagnation, however, having insufficient controls can create substandard work and potentially result in future costly remediation effort.
Based on PwC experience in the market we can categorise financial institutions that are encountering challenges identifying their Quality/Efficiency equilibrium point into two groups:
The first group are those organisations with quality frameworks designed to operate with a minimum level of controls (e.g., only employing second level controls on a limited sample basis) and who do not incorporate controls such as in-flight quality reviews, feedback loops or aligned training programmes.
The second group are organisations that invested significant resources in implementing a quality framework, however, the framework itself is not consistently or holistically implemented. In this case, the benefits may not be proportionate to the investment (such as investing in dedicated teams without providing the oversight or supporting technology to allow teams to coordinate with each other effectively).
In both groups, the organisations may not have sufficient information about the quality of the executed AML process and whether the actions they are taking are mitigating the risks they are faced with. This is due to controls working in isolation and not being aligned with each other. There are number of different ways in which this can be improved to increase the effectiveness of a quality framework.
A fully implemented and aligned quality framework can form the basis of a continual cycle of improvement by periodic reviews of the operational effectiveness of the framework against the organisational objectives.
Reviewing components of the quality framework, such as roles and responsibilities or establishing a continuous feedback system can help reduce inefficiencies that drive up costs. Establishing clear strategic aims and creating governance over how they are periodically reviewed may also drive alignment between the objectives of the AML policy and how it is interpreted and delivered operationally.
Technology can be utilised to improve operational efficiencies within the AML process; discovery and diagnostic tools can be used to gain detailed process insights as well as provide data that can be used to identify areas subject to looping or bottlenecks, highlighting areas for process design and improvement strategies.
Following the standard steps for a Customer Due Diligence (CDD) process flow there are a number of areas where technology can be employed to enhance the efficiency of the process.
There is the facility to incorporate the automatic population of specific data fields within the workflow tool that can be employed to obtain data from sources, such as from commercial registers and data providers. Automated solutions can also be used to create ownership structure charts and help streamline the operational process as well as reduce the potential for human error in capturing this information.
Automated solutions include machine learning algorithms, such as predictive sampling, that target quality checks enabling analysts to work more effectively. Predictive Sampling is a solution that helps to reduce costs and effectively manage risk by improving the accuracy of the quality control. The method uses Artificial Intelligence (AI) to provide a more efficient selection of cases directed to review, identifying those with the highest probability of error. It can help organisations increase the quality of operational processes and compliance with regulations by improving processes and managing resources efficiently.
In addition, exploring and refining reporting functions within workflow tools allow reporting suites to be created for analysing errors to identify trends and highlighting potential training requirements. This enables quality to be managed in a more proactive and strategic manner.
Quality controls are not merely about maintaining accuracy in AML records; they are a way of enabling compliance with the organisation’s risk policy as well as gaining insight into their portfolio and exposure to certain risk areas. The Framework also forms a continuous feedback loop using a root cause analysis to identify and remediate challenges within the systems and discrepancies between policies and desktop working instructions. By utilising the technologies available to drive efficiencies and establishing appropriate governance, the quality framework can help reduce costs as well as creating a more positive customer experience.
