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Battling AML Regulations With Entity Resolution

By Jack Bullock

Financial institutions across the country are facing a collective, unprecedented challenge. Constantly evolving, stringent anti-money laundering regulations and “know-your-customer” safeguards require these businesses to present a transparent, detailed and precise view of customers. Cutting through the complexity of these regulations and managing data to ensure compliance places a huge burden on these firms, financially, technologically and in terms of appropriate skill sets. It is, however, absolutely critical as the impact of non-compliance is huge.

Banks, athletic institutions and risk management providers around the globe have been impacted, making headlines in recent months. The media spotlight on this and other high-profile cases is adding pressure to regulators to respond and further tighten controls.

But the risk isn’t limited to just large, multinational banks and businesses. Regional, community banks and small financial institutions across the country are also heavily impacted by stringent AML regulations — often with far less resources to adapt to evolving laundering trends than their larger counterparts. According to a report from Aite Group, increasing regulatory pressure, growing workloads and tighter budget constraints are forcing these financial institutions to figure out how to do more with less.

According to the Federal Reserve Bank of Kansas City, more and more financial institutions are turning to data to assess exposures to different types of risk. Avoidance of these AML fines lies in the ability to provide accurate and detailed information on customers structured in a consistent, transparent way. Data is prone to error and variation, and for smaller financial institutions, manually monitoring data to meet compliance can be a daunting and burdensome task.

Smart organizations are overcoming this and developing a clearer understanding of risk by applying “entity resolution.” This approach aggregates data from multiple sources, such as contact databases, transactional records and notes on client engagements to create consistent, precise customer data. Entity resolution looks at different data sources and references to an individual, taking into account inconsistencies, errors, abbreviations and incomplete records, and determines whether they relate to the same entity.

If they do refer to the same entity, a single, trusted client record can be created: Jonathan Goldberg of Stamford, Conn., for example, could be recorded in another data set as Jon Goldberg of Stanford, Conn. At first glance, they look like two separate individuals but entity resolution will dig deeper and see through the input errors and inconsistencies, helping firms minimize and contain risk by providing transparent and accurate data. It removes issues relating to format, salutation, abbreviation of state or county, and joins disparate data sources to add new context and reveal a deeper understanding.

And entity resolution software is well within reach for community banks and small financial services providers. One example is the recently announced Single Customer View software from Pitney Bowes. The software enables financial services providers of all sizes to enhance their anti-money laundering systems and processes by managing a centralized repository of high quality customer and non-customer (“pseudo”) data. This in turn drives deeper insight into complex webs of obvious and non-obvious relationships, providing an improved first-line defense against suspicious transactions – allowing a community bank to more quickly make the connection that Jonathan Goldberg of Stamford and Jon Goldberg of Stanford are one and the same.

Entity resolution provides banks with the ability to:

  • Generate greater insight into their clients, helping address compliance issues mandated both at an international level and in their own markets by regulations including USA Patriot Act, the Bank Secrecy Act and foreign account tax compliance.
  • Reduce false positives and the wasted effort associated with investigating them.
  • Drive down costs associated with regulatory compliance, by providing greater control and reducing time spent on data checks.
  • Combine data from across an organization and synchronize the customer data into a reduced number of entities.
  • Link interested parties to a customer and to each other.

Regulators continue to tighten their grip on the industry, and financial institutions’ increasing focus on AML reflects this. In fact, 88 percent of respondents in KMPG’s 2014 AML Survey finds AML to be a priority for senior management — a huge jump from the 2011 survey, in which just 62 percent felt it was a high profile issue. Seventy-four percent predict more increases in AML investment in the next three years, with 59 percent investing in know your customer compliance. Additionally, 80 percent say reaction to regulatory demands is a primary reason for investment in a particular area of AML, and 70 percent of respondents have received a regulatory visit relating to know-your-customer rules.

It’s the time to shine for entity resolution – and the smart institutions rolling it out.

 

Jack Bullock is senior vice president at Pitney Bowes. For more information visit www.pitneybowes.com.

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