Banks, insurers, fintechs and other institutions around the globe have been struggling for years to address a rising wave of financial crime, spending hundreds of billions of dollars on compliance, and paying additional billions in fines.
We need a better way.
As pressure from regulators continues to mount, it’s increasingly clear that just adding resources to do more of the same isn’t going to get the job done. To really address financial crime, institutions need a fresh approach. Financial Crime Managed Services offers a new way of tackling the problem.
Financial crime management services
To understand the scale of what financial institutions are up against, it’s worth taking a step back and looking at a few numbers. The global financial criminal economy is worth US$5.8 trillion each year, but authorities seize less than 1% of those criminal proceeds*. Meanwhile, banks were calculated to spend US$214 billion on measures to fight financial crime in 2020**. And criminals are constantly devising new ways to keep from getting caught, leading to a never-ending arms race that requires institutions to constantly develop new technologies.
Mitigating financial crime is a challenge for law enforcement, governments and regulators globally, not just financial institutions. Everyone has a role to play, and because of their position as gatekeepers to the global monetary system, the financial sector’s contribution is key. Because of the mounting regulatory pressure on the one hand, and constant innovation by criminals on the other, institutions are spending increasing amounts on prevention methods. The cost isn’t measured only in dollars and cents, but also in time and attention: executives are having to spend more of each on preventing financial crime – sometimes to the degree that it distracts them from their core business of serving clients.
Unfortunately, even with all that time, money and attention, those efforts aren’t bearing fruit.
Anti-money laundering (AML) and know your customer (KYC) operating costs range between US$226m and US$452m a year at each of the larger international banks***.
Fines reached US$10.4 billion globally in 2020****. Meanwhile, more than 80% of KYC analyst time is spent on data and document collection activities rather than real risk assessment and judgement, and 80-90% of transaction monitoring and name screening hits are false positives.
All of this is happening in an environment where the COVID-19 recession and asset impairments are reducing risk-bearing capacity for regulated industries to support the real economy as it enters a recovery phase. Firms are also facing unrelenting pressure to boost productivity by accelerating the digital transformation of their businesses.
To help clients respond to all of these challenges, PwC is providing Financial Crime operations via a Managed Services model. Built around cutting-edge technologies, including data analytics, robotic process automation and artificial intelligence, Managed Services is PwC’s unique approach to operational delivery. It’s a model that’s designed to foster innovation, coming up with revolutionary new ways to address complex problems. Managed Services is deeper than a traditional outsourcing relationship, providing complex, long-term solutions in areas that require human judgement, setting up a structure that integrates PwC with the client’s organisation.
That means PwC takes on the burden of investing in people, know-how and technology, allowing financial institutions to devote their time, money and attention to their core business. Because of its longstanding expertise in fighting financial crime and its competitive advantage in the technologies that streamline business processes, PwC can deliver anti-Financial Crime outcomes more efficiently than in-house operations. Managed Services is a human-led, technology-enabled approach, built around operating models and tools that allow it to evolve to meet new threats that emerge as financial criminals innovate.
Managed Services can take over parts of Financial Crime operations, or the entire process, beginning with elements that are complex, labour-intensive, incremental and dependent on external data. But in contrast to traditional outsourcing, Managed Services focuses on transforming and optimising functional operation, with a focus on process excellence. Because the Managed Services model requires a transformation of how organisations operate, PwC partners with financial institutions along the journey to work out the best fit delivery model. This can be based on a co-sourcing approach, where the institutions retain responsibility for internal process, while relying on the outside specialised skills and operational capability.
Doing business with integrity and fulfilling regulatory, ethical and social responsibilities in protecting customers and business partners absorbs resources. And supporting governments, regulators, and law enforcement in their missions generates an extensive set of operational processes, interventions and tasks. All of them are important, but none of them adds value to the institution’s core business itself. By partnering with a trustworthy Managed Services provider, financial institutions can remain focused on their principal mission. They can free up time and resources that can be allocated to projects that add value, while being certain that their compliance processes are being managed and enhanced to meet their obligations to regulators and to society as a whole.
* https://www.economist.com/finance-and-economics/2021/04/12/the-war-against-money-laundering-is-being-lost
** Global True Cost of Compliance 2020, LexisNexis
*** Capturing the value in 'knowing your customer, Strategy&
**** Global Regulatory Fines Report, Fenergo
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