The financial crime landscape is rapidly evolving. At the recent ACAMS event, I had the pleasure of hosting a Knowledge Luncheon Session, with senior leaders from Varo Bank, M&T and Huntington Bank in attendance, which delved into one of the most interesting topics in compliance today: Converging Fraud and Anti-Money Laundering (FRAML) detection efforts.
Traditionally siloed functions, AML and fraud detection have been managed separately by compliance teams and business units. However, with the lines between fraud and money laundering becoming increasingly blurred, there’s a growing need for these functions to work together.
During our session, we explored how integrating AML and fraud detection can improve risk management while strengthening regulatory compliance, ultimately protecting institutions from financial and reputational harm. Let’s take a moment to reflect on some key insights and takeaways from the session.
How Financial Institutions Are Structuring Their Fraud & AML Programs
Legacy banks and financial institutions still largely manage these programs in silos, while FinTechs are leading the charge by converging AML and fraud detection into unified functions. The FinTech sector’s agility and openness to innovation allow them to reap the benefits of convergence much faster.
Challenges in Investigating Fraud and AML Separately
Many banks handle fraud as a separate function, with dedicated teams focusing on various types of investigation to identify fraud / AML red flags. This separation often leads to fragmented information sharing, slowing decision-making. However, our panelists highlighted that robust functional oversight by Money Laundering Reporting Officers (MLRO), along with collaborative forums and discussions, is helping identify trends in both fraud and AML.
The Advantages of a Unified FRAML Program
The most compelling aspect of the discussion was around the advantages of implementing a FRAML compliance program. Panelists agreed that unifying these two functions could dramatically improve investigation and reporting capabilities, helping institutions manage their business and customer relationships more effectively while staying compliant. This convergence can be a game-changer in reducing operational risks, preventing fraud and meeting regulatory obligations.
However, there’s a significant hurdle – existing technology frameworks and, in some cases, resistance from top management. A robust technology platform is critical to this convergence, and gaining acceptance at the board level will be a key factor in moving forward.
Thus, adopting a best-practice-driven technology approach is crucial. Financial institutions must:
- Assess their current technology landscapes and data frameworks.
- Establish a common data foundation for FRAML.
- Partner with technology providers with proven domain expertise.
Increasing Regulatory Support for FRAML Adoption
It’s worth noting that regulators are beginning to see the value in converging AML and fraud detection practices. The Financial Crimes Enforcement Network (FinCEN) in its national priorities of AML / Countering the Financing of Terrorism (CFT) for 2024 emphasizes the connection between fraud and AML, underlining that fraud is a top priority in its fight against financial crime, alongside corruption, cybercrime, terrorism and human trafficking. This alignment of regulatory priorities provides further impetus for financial institutions to move toward a FRAML framework.
Notably, our panelists underscored that convergence isn’t just a matter of regulatory compliance – it also offers cost savings, improved transparency and better operational efficiency. Interestingly, there was also a growing consensus around the need to integrate cybersecurity into the FRAML conversation, especially given today’s digital-first world.
Key Takeaways from the Session
- The Size of the Institution Matters: Larger institutions face greater challenges in merging AML and fraud functions. However, that doesn’t mean convergence isn’t possible. Establishing oversight of Suspicious Activity Report (SAR) quality from the compliance front is critical.
- FinTechs Lead the Way: While traditional banks may struggle with integration due to legacy systems and complex structures, FinTechs are setting the pace, proving that convergence is achievable.
- The Role of Technology: Advancements in Machine Learning (ML) and Generative AI (Gen AI) are emerging as game-changers that can help streamline the convergence.
- Cybersecurity’s Growing Importance: As fraud, AML and cybersecurity threats become more intertwined, organizations must think holistically about risk management, weaving all three into a unified framework.
As financial crime evolves, so must our approach to managing it. Converging AML, fraud detection and cybersecurity isn’t just a future goal; it’s an imperative that institutions must prioritize today. At WNS, we’re excited to continue leading these discussions and helping organizations navigate this complex landscape with the right technology and expertise.
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