Reflection on compliance and automation
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The document appears to be a presentation given by Mohammad Ibrahim Fheili on evolving technologies and their implications for compliance. Some key points from the presentation include: - Compliance processes have been transformed into data-rich decision making processes that rely heavily on collecting and updating client profiles, which can be overwhelming without technology and automation. - Technology alone cannot improve compliance if the underlying compliance processes are inadequate, but it can help process data more efficiently. - Digital transformation and automation can optimize KYC and CDD processes by enabling parallel processing, mobile access, and integrating previously siloed compliance sub-processes. - However, over-reliance on technology also increases exposure to IT failures, so
Reflection on compliance and automation
- 1. Mohammad Ibrahim Fheili / Risk & Capacity Building Specialist / eMail: mifheili@gmail.com Mobile: +961 3 33 71 75 The 8th Annual Forum HEADS OF AML/CFT UNITS AT ARAB BANKS AND FINANCIAL INSTITUTIONS October 4th & 5th of 2018 Movenpick Hotel
- 2. Mohammad Ibrahim Fheili / Risk & Capacity Building Specialist / eMail: mifheili@gmail.com Mobile: +961 3 33 71 75 Session: Evolving Technologies & Their Implications On The World Of Compliance. Presentation: The World Of Compliance and Process Automation By Mohammad Ibrahim Fheili Risk & Capacity Specialist /AGM – JTB Bank
- 3. Mohammad Ibrahim Fheili / Risk & Capacity Building Specialist / eMail: mifheili@gmail.com Mobile: +961 3 33 71 75 Too Much, Too Quickly, Too Technical, Too Demanding, . . . The Classic Areas of Anti Money Laundering Parachuted into The World of Anti Money Laundering
- 4. Mohammad Ibrahim Fheili / Risk & Capacity Building Specialist / eMail: mifheili@gmail.com Mobile: +961 3 33 71 75
- 5. Mohammad Ibrahim Fheili / Risk & Capacity Building Specialist / eMail: mifheili@gmail.com Mobile: +961 3 33 71 75 Compliance Evolved . . . or Simply Changed?! We can't change the direction of the wind, but We can adjust our sails to always reach our destination.
- 6. Mohammad Ibrahim Fheili / Risk & Capacity Building Specialist / eMail: mifheili@gmail.com Mobile: +961 3 33 71 75 Have We Decided Where’re We Going? What Is Our Destination? Value Creatio n Simply Clean Up!
- 7. Mohammad Ibrahim Fheili / Risk & Capacity Building Specialist / eMail: mifheili@gmail.com Mobile: +961 3 33 71 75 Reactiv e Evolvin g Proactiv e Pas t Fut ure From legal program manager … From “No You Can’t” … From Transactions and Processes … From Cleaning up … From an Expense … … to Senior-Level Advisor … to “yes We Can”, here’s how we can … to analytics and behavior … to keeping clean … to an Asset How Compliance Has Evolved Intelligen t
- 8. Mohammad Ibrahim Fheili / Risk & Capacity Building Specialist / eMail: mifheili@gmail.com Mobile: +961 3 33 71 75 The Compliance Landscape Has Been Changing! . . . Beyond Recognition! Compliance Officers Have Been Simply Coping With This Change . . . ‘Reactive’
- 9. Mohammad Ibrahim Fheili / Risk & Capacity Building Specialist / eMail: mifheili@gmail.com Mobile: +961 3 33 71 75 Communication At The Point Of Interface With The Clients Has Not Been Conducive To Productivity! • The Communication Between Employees Involved In The “Service Cycle” and Others Involved In The “Compliance Cycle” at the Branch can be potentially ‘Destructive’! • The Regulator Has Been Giving More Power To The Compliance Function Rendering The “Compliance Cycle” Arrogant, and The “Service Cycle” resistant! • Unit/Bank Performance is Contingent Upon The Success Of Both; The Service & Compliance
- 10. Mohammad Ibrahim Fheili / Risk & Capacity Building Specialist / eMail: mifheili@gmail.com Mobile: +961 3 33 71 75 Compliance Cycle Service Cycle On Going Follow up & Service Handling Complaints Cross-Selling Updating Customer Profile (CIP), Etc…. Customer Risk Scoring Customer Due Diligence Risk Transaction Monitoring Systems Cash Aggregation and Reporting Systems, Etc….. “Compliance Cycle” must be tainted with the ‘Service Culture’. AND “Service Cycle” must be contaminated with the ‘Compliance Culture’. BUT the two Cycles MUST BE separated, but the On Going Monitoring & Compliance
- 11. Mohammad Ibrahim Fheili / Risk & Capacity Building Specialist / eMail: mifheili@gmail.com Mobile: +961 3 33 71 75 Automation Exaggerated: If You Can’t Do It In Physical Environment, Who Said You Can Do It In Virtual Environment! Pursuing Technology for Technology’s Sake is Disruptive!
- 12. Mohammad Ibrahim Fheili / Risk & Capacity Building Specialist / eMail: mifheili@gmail.com Mobile: +961 3 33 71 75 Collect Data Before Engagement, and Continue to do so beyond the date of recognition Collecting Data haphazardly is NOT PRODUCTIVE in the era of Heavy Compliance Risks Taking (Intentional & Unintentional) Known to The Financial Institution . . . With continuous efforts to Identify more Non-Identifiable Risk Non-IdentifiableRisk Financial Institution’s Risk/Data Population What is Normally Used in Risk Identification: • CIP • KYC • DD • EDD • Complete and Up-To- Date Client File, • Client Visits. • Proper Follow Up • Comprehensive & Consistent Data about the Market • Etc. Identified & Identifiable Risks • Expected Losses are normally controlled or met using Gross Income, • While Unexpected Losses require Capital. Collecting, Storing, and Processing Data is a Conscious Decision … NOT A RANDOM EVENT . . . Breeding The Right Data-Culture is Key To Success.
- 13. Mohammad Ibrahim Fheili / Risk & Capacity Building Specialist / eMail: mifheili@gmail.com Mobile: +961 3 33 71 75 Why Technology? G.I-G.O. Remains as True as it has ever been! • Compliance has been transformed into Data-Rich Decision-Making Processes and sub-processes. • The Pressure to continuously collect and update clients’ Profile is overwhelming and cannot be performed simply by relying on traditional means! • Technology and Automation can do little to help if Compliance Processes, as they exist in Physical environment, are not adequate. • The Correctness of the Process has little to do with technology; Technology only does the processing faster with greater efficiency. • Since the dawn of time we, bankers, collect data: • To Describe what happened (understand the population!) – Descriptive Analytics • To Explain Why it Happened (go to the root-cause of the problem if & when it happens) – Diagnostic Analytics • To Anticipate what will happen (Inherently probabilistic) – Predictive Analytics • To provide recommendation on what to do to be adequately compliant – Prescriptive Analytics
- 14. Mohammad Ibrahim Fheili / Risk & Capacity Building Specialist / eMail: mifheili@gmail.com Mobile: +961 3 33 71 75 Degree of Engagement in Due Diligence & AML Compliance ResourcesDeployed DD EDD RBA Moving in this direction is a clear indication that there is a decision on the part of the Bank to continue on serving the client. Due Diligence Enhanced Due Diligence Risk-Based Approach to AML Compliance Enhancing Compliance Capabilities … AMLCost SkillsNeeds Know-How AMLAnalytics The MAIN OBJECTIVE of Enhanced AML Compliance Steps is to Improve your Knowledge of the Client so you can serve him/her better. So the decision to “Accept & Serve” the Client will be a Calculated Risk Choice! The Use of Technology will be necessary! However, increase reliance on IT increases exposure to IT failures (i,.e., Risk). Does the Bank have a Compliance is not an end in itself; it is a means to better serve Clients.
- 15. Mohammad Ibrahim Fheili / Risk & Capacity Building Specialist / eMail: mifheili@gmail.com Mobile: +961 3 33 71 75 The Overwhelming Amount Of Data That Is Available And Required To Do The Job Of Compliance Properly Can’t Be Handled Traditionally! Optimize With Digital Transformation . . .
- 16. Mohammad Ibrahim Fheili / Risk & Capacity Building Specialist / eMail: mifheili@gmail.com Mobile: +961 3 33 71 75 The Promise of Digital and Automation • The financial services industry is awakening to the value of automation and digitization in organizations’ KYC and CDD processes and the promise of reduced costs and enhanced customer experience. Regulators across jurisdictions are increasingly willing to support banks’ efforts to embrace digitization and automation. • Some digital initiatives in which banks are currently investing include: Self-service digital channels for CDD, Maintenance of client documents in a centrally managed repository, Stringent role-specific access control mechanisms, and A rules engine with embedded logic to assess whether regulatory changes will impact clients.
- 17. Mohammad Ibrahim Fheili / Risk & Capacity Building Specialist / eMail: mifheili@gmail.com Mobile: +961 3 33 71 75 Digitization Can Optimize . . . Digitization can optimize the CDD and AML/KYC processes in the following ways: • Parallel processing of “new-to-bank” client onboarding, aided by a rules-based workflow engine and automation of manual activities. This can substantially reduce turnaround time for account opening. • Mobile and web-based apps, which can assist users with onboarding review tasks for their assigned client cases. Apps are also available to support e-signatures and reporting. • Form digitization, which can substantially reduce
- 18. Mohammad Ibrahim Fheili / Risk & Capacity Building Specialist / eMail: mifheili@gmail.com Mobile: +961 3 33 71 75 The most interesting aspect of digitization is process automation. Client on-boarding involves multiple sub- processes, such as: • Data collection, • KYC and AML, • Credit assessment, • Risk profiling, • Account setup, • Activation and • Internal reference data updating. Each sub-process is handled by a separate department. Digitization Can Optimize . . . Continues
- 19. Mohammad Ibrahim Fheili / Risk & Capacity Building Specialist / eMail: mifheili@gmail.com Mobile: +961 3 33 71 75 • It becomes more complex when a client opens various banking relationships, such as an investment account and a line of credit, at different points in time. In the traditional CDD environment, different lines of business within the bank work in isolation, leading to duplicate client data collection. This is both aggravating for the customer and also time- consuming. • Banks are now trying to automate large parts of the process for low-risk clients. While this can result in substantial cost savings and operational Digitization Can Optimize . . . Continues
- 20. Mohammad Ibrahim Fheili / Risk & Capacity Building Specialist / eMail: mifheili@gmail.com Mobile: +961 3 33 71 75 Client Due Diligence Challenges The Complexities, Challenges and Difficulties inherent to client onboarding include the following: • Data quality: Banks face numerous challenges when collecting required data for client due diligence (CDD). Information received from the public domain is often inaccurate, and clients often have privacy concerns when it comes to sharing personal information. Bank employees are hesitant to pressure clients for fear of antagonizing them. • Ascertaining the ultimate beneficial owner (UBO): This is perhaps the most daunting CDD requirement, particularly with the increased pressures of FinCEN’s recently released Final Rule on Beneficial Ownership and the 4MLD regulation. Currently, the U.S. has not set regulatory restrictions for determining the UBO, but in the European Union, banks are required to identify individuals with 25% or more equity interest in a legal entity. Most banks lack a well-established policy to determine the UBO
- 21. Mohammad Ibrahim Fheili / Risk & Capacity Building Specialist / eMail: mifheili@gmail.com Mobile: +961 3 33 71 75 The Complexities, Challenges and Difficulties inherent to client onboarding include the following (Continues): • Siloed processes and lack of standardization: In the absence of a standardized AML risk assessment template, the processes and rules for collecting, maintaining and updating client data differ vastly across most banking organizations. Multiple siloed systems and user interfaces are used for client onboarding and maintaining client data. Different lines of business use different search tools, and document storage methods and locations are varied. • Ever-changing regulatory requirements: Because global banks come under the purview of multiple regulatory bodies, their internal systems need to be agile enough to accommodate these varied and often contradictory requirements across geographies. Client Due Diligence Challenges
- 22. Mohammad Ibrahim Fheili / Risk & Capacity Building Specialist / eMail: mifheili@gmail.com Mobile: +961 3 33 71 75 “Over 30 years of Experience in Banking. mifheili@gmail.com (961) 3 337175 Speaker’s Biography Mohammad Ibrahim Fheili Risk & Capacity Building Specialist. Lecturer in Risk, Risk-Based Performance & Compliance University Lecturer: Economics, Risk, and Banking Operations Currently serves in the capacity of an Executive (AGM) at JTB Bank in Lebanon. Served as: Senior Manager & Chief Risk Officer at Group Fransabank Senior Manager at BankMed An Economist at the Association of Banks in Lebanon Mohammad received his college education (undergraduate & graduate) at Louisiana State University (LSU), and has been teaching Economics and Finance for over 25 continuous years at reputable universities in the USA (LSU) and Lebanon (LAU). Finally, Mohammad published over 25 articles, of those many are in refereed Journals (e.g., Journal of Money Laundering & Control; Journal of Operational Risk; Journal of Law & Economics; etc.) and Bulletins.”