As we engage in discussions with customers and businesses across the financial services industry in France, an issue that is continually coming to the fore is the importance of risk analysis and the role that automation can play in this area. A key driver has been the recent surge in sanctions activity.

As we see changes in the regulatory landscape and an increase in sanctions enforcement, especially, executing risk analysis and alerting in an effective manner has become more important than ever before. The good news is that automation technology is transforming the way that regulatory risk is identified and analyzed.

Rather than relying solely on the manual work of analysts, automation can assist in the discovery of potential risk when it comes to entering into a commercial relationship with an entity.

This can prove widely beneficial, in terms of efficiency, accuracy, and allowing manual effort to be focused on other areas that depend on human intervention.

When it comes to the topic of Anti-Money Laundering (AML) and compliance, risk identification and analysis is something that is particularly pertinent for financial institutions in France, and, as mentioned, is a topic that industry figures have been discussing and examining as they look to put robust measures in place.

Here, Charles-André Duport, our Business Development Director – Global Accounts, looks at the issues around risk analysis and the place of automation in this vital component of an AML programme.

A pivotal point

We are at a pivotal point when it comes to both risk and enforcement. Looking at sanctions, for example, this is an area that is developing at pace. The rate of fines is now at an all-time high, with The Office of Foreign Asset Control (OFAC) having imposed no less than 14 global penalties in the first half of 2019.

What this means is that organizations must be fully confident in their ability to identify and assess risk with strategies and programmes.

Robust regulatory compliance rests firmly on an organization’s ability to comprehensively identify risk within their customer base. This is no easy feat for large, global banks dealing with corporate customers.

Beneficial ownership can hidden in complex structures and non-transparent jurisdictions, making it time-consuming and costly to uncover, but without the full picture of a customer’s owners and directors, comprehensive risk identification and analysis is impossible.

Traditionally, the task of unwrapping corporate ownership has been a largely manual effort. Manual processes, however, are susceptible to human error and inconsistencies. With fines for money laundering and sanctions offences rising sharply, continuing with this approach can put an organization at risk of falling foul of the law.

The development of capabilities such as Intelligent Process Automation (IPA) has helped to remove repetitive, replicable, and routine tasks, which has taken much of the burden from employees and also ensures a consistent approach.

IPA tools cut costs, eliminate keying errors, speed up processes and link applications.

Risk identification and analysis involves the processing of a large volume of data. When it comes to sanctions, for example, not just the names of listed individuals and entities, but also details such as known aliases and location, must be screened. Depending on the size of a business’ customer base, keeping on top of updates to sanctions can be a challenge. This is why many are now opting to integrate screening tools and automation, such as Encompass, into their daily processes.

This can offer not only significant time and cost savings, but also provide an extra level of security that manually performing the tasks would not give, given the chance of human error.

Unwrap corporate ownership structures

The Encompass platform enables organizations to get the full picture of their customers and entities they are considering forming business ties with, and it can be done in a way that is both efficient and cost effective.

An understanding of the corporate structure and those with beneficial ownership and control of an end customer is central to building this picture and understanding what lies behind a company, allowing for risk to be properly evaluated.

Our platform integrates critical data sources, including global sanctions lists, and automatically conducts intelligent analytics to deliver easy to understand global corporate linkage and personal share ownership. This is the starting point for a Know Your Customer (KYC) process, allowing further automation to build on top of the unwrapped foundation.

EIdentify sanctions risk

Going a step beyond the unwrapping of the corporate structure in question, another key stage in the process is identifying and analyzing sanctions risk, which, thanks to automation technology, can also be done quickly and effectively.

According to a client’s risk-based approach, Encompass is able to screen individuals and entities against preferred suppliers of PEP (Politically Exposed Persons) and sanctions data. The level of screening is determined by a clients’ internal policy requirements, and our data integrations mean that existing trusted sources can continue to be used.

Our platform offers a series of features that make identifying risk faster and easier, including;

Existing integration to leading sources of sanctions data

Our comprehensive data coverage includes Dow Jones Risk & Compliance, LexisNexis Risk Solutions, Refinitiv, Acuris Risk Intelligence and ComplyAdvantage.

Visuals that illustrate risk and alerts

Our advanced data visualization capabilities allow us to dynamically build out corporate ownership structure charts that highlight sanctions and other regulatory or reputational risks using clear icons. Information that is easier to digest results in faster decisions that support business growth.

Ongoing monitoring and alerts

Alerts that show when there is a sanctioned individual or entity or Politically Exposed Person (PEP) to be taken into account

It is by having the information made evident by the screening that analysts are able to confidently and truly identify and evaluate risk.

Risk ratings

Once Encompass has unwrapped a corporate structure, analysts also have a full picture with which they can begin to understand and rate risk. Risk ratings within Encompass are designed to mirror typical risk relevant factors associated with KYC cases.

Risk levels that have been set by an analyst for different entities roll up to determine the overall risk associated with a customer. Default risk factors in our solution reflect those typically used by firms to comply with global AML regulations, such as Ownership and Control; Country; Industry; Product; Screening; Identity and Adverse News.

Each identified risk factor is set by the analyst and will contribute to the overall risk rating for the profile in question. This can be changed by the analyst over time as new information arises or KYC policies change.

Reflection

The current level of sanctions activity that we are seeing is the driver behind my clients in financial services revisiting the effectiveness of their AML/KYC systems, processes and procedures.

The majority of banks that I talk to understand the importance of automation.

They recognise that it is a critical component of a modern compliance programme. However, automating processes across multiple lines of business – each with different risk profiles and appetites, products and customer types – is complex and cannot be achieved with inflexible, out of the box solutions. At the other end of the spectrum, end-to-end customer onboarding platforms offer the configurability required, but can take several years to implement due to the scale of the job.

What we offer is a middle ground solution, with a range of product components to suit any organization.

Our intelligent process automation can be configured to handle multiple processes, automatically routing customers through the correct KYC process based on specific policies and procedures, as well as by using business rules and logic.

Building this automation into risk identification and analysis provides better alerting capabilities and ensures consistency in the way risks are rated and monitored. Automation also drives down the cost of compliance by eliminating routine manual work where no human reasoning is required.

We continue to innovate and transform the ways firms identify, assess and mitigate risk. To learn more about how Encompass could help your business, or to discuss our future plans, please get in touch.