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successful customer risk management

5 non-negotiable tech ingredients for successful customer risk management

Chiara Gelmini , Log in to subscribe to the Blog

A checklist for compliance and operations professionals

The 2020’s are disrupting the world as we know it. Big shifts, new opportunities, and new risks are shaping the financial services industry due to global financial pressures, rapidly changing geopolitical situations, the emergence of Web 3.0, and more. Adaptability is key for business success and financial service organizations can thrive in these evolving conditions by focusing on customer risk management.

Here are the top 5 tech essentials that leading brands in financial services will prioritize in the next two to three years to manage customer risks more efficiently and effectively:

  1. Enable a risk-centric approach to foster proactive risk management practices
  2. Prioritize data quality, and accessibility and make insights actionable
  3. Break silos by implementing a unified case management solution
  4. Invest in composable business to adapt to any market needs, customer needs, and internal enterprise needs
  5. Build for change for true resilience

1. Risk monitoring engine

The first foundational tech capability to optimal customer risk and due diligence management is devoted to enabling a risk-centric approach, which is indispensable for successful proactive risk management practices.

Today's customer experience is broken (due to a lack of transparency, lengthy checks, intrusive back-and-forth communication, and outdated manual and paper-based activities) and firms are unable to spot and manage risk appropriately. Banks need to cut down on the risk management cycle times to improve accuracy and reduce customer churn.

With a Risk Monitoring Engine, compliance and risk officers can leverage a true “one-stop shop” tech module that assists financial firms in staying continuously compliant in today’s ever-changing space to accelerate customer due diligence and alert investigations management processes, while also reducing the costs of operations and compliance.

Financial firms can leverage the Risk Monitoring Engine to codify both business rules and compliance as necessary. Manual processes that staff must be trained to do can be automatically applied against the available data (and even enhance it) so that when staff needs to make a decision, it is all available at their fingertips, eliminating the need for ‘swivel-chair’ access across multiple systems. Some key tech feature ingredients include:

  • Zero-code configuration of out-of-the-box cross-jurisdictional rulesets, to ensure the financial institutions meet their specific needs from internal and external policies, procedures and process requirements.
  • Auditability of all rule changes and versioning, by design.
  • Risk Monitoring requirements driven by the booking jurisdiction and type of the product, by the customer type, by the risk profile and other configurable drivers, making it possible to apply only “what’s required, when required”.
  • A Master Profile of customers and all their related parties (e.g., beneficial owners, majority shareholders), across all lines of business, products, and geographies as well as complex direct/indirect and parent/child relationships.
  • Full integration with Client Lifecycle Management (CLM) solutions and tools, front-to-back, ensuring efficiency and transparency.

2. Data

The weight and sophistication of money laundering paradigms and the increasingly shorter shelf-life of regulatory requirements increase the obligation to continuously ensure that the financial institution is managing risk properly and complying with the laws of each country where they operate. Paramount to being able to do so is strong data quality and accessibility.

Data Quality
Right the first time: It all starts with the right data being captured during prospecting, client onboarding, first KYC/DD profiling and its enrichment. Once collected, that data will be leveraged across the board to drive the right products and services proposal, automate case creation and prioritization, routing, decisioning, and approvals. Preserving the context of each piece of work throughout the entire workflow lifecycle (as work passes from one business silo to the next) helps large organizations integrate, automate, and improve their complex front- to back-office operations. This way, institutions can ensure increased data quality from the first touch, reducing re-works, and human errors.

Data Availability
Consistent across the board: Firms need to insulate users and customers from back-end complexity and intelligently automate third-party data collection by leveraging internal and external data sources. The right technology sits at the heart of an organization’s technology stack and is agnostic to where data comes from and where it ultimately resides. Technology helps financial firms to take that data, from wherever it comes and process it, with as much automation as possible to get it to where it needs to be.

Modern technologies can connect to the various systems a bank has and pull that information in real-time. Think of it like the clipboard on your computer. It gets used for the process and then discarded from the system, but only after it is verified and pushed to its designated data store. While audit trails are made available at any point.

Based on data, financial firms can ensure the right counter risk and AFC/AML actions and decisions are taken by implementing a Business-As-Usual (BAU) risk management and KYC practice, one that is continuous, near real-time, and contextual (aka event- and data-driven).

In summary: first, get data right and available. Second, make insights actionable.

3. Unified case management

In today's world there’s little tolerance for disconnected approaches to work. The good news is there have been advances in how to manage all the risk and compliance work end-to-end, and it’s called case management.

In a nutshell, case management is a software-based approach to managing a set of processes that collects, tracks, and consolidates data to achieve a business outcome. It’s a unified context of your process, logic data, and intelligence, and when fully integrated, the result is a dynamic ecosystem of work that reflects the environments in which it’s done.

Looking at customer risk and due diligence management, beyond taking a best of breed approach to detection and monitoring, banks need to leverage the detection output from these systems into a unified case management system for AML/AFC/sanction alerts and cases. Although these alerts and cases may be worked independently by the respective units, a unified case management tool not only allows for a consolidated view of customer risks at entity level, but -most importantly- provides with the ability to increase STP where applicable, while seamlessly orchestrating the very needed actions and competences to address that particular risk matter.

How? As an auditable history of every event that takes place. A new client onboarding is a case. A periodic refresh is a case. An investigation is a case. A new product origination, a client maintenance like change of address, change of directors, change of shareholders are all processed as cases, with many people and even the clients themselves being able to work on the case in parallel at the same time, if necessary.

4. Composability

Gartner predicts that by 2024, the growth of automation marketplaces will propel 80% of large enterprises to pivot to principles of composability, minimize operational independencies, and maximize the value of their hyper-automation initiatives.

Composable business means combining agile business models with digital technologies to adapt to any market needs, customer needs, and internal enterprise needs. Decades of process changes and system evolutions have left financial institution teams, workflows, and applications intertwined. As a result, businesses often find themselves full of bloated business processes and applications with too many competing purposes, and often struggle with managing:

  • slow change rates
  • multiple interdependencies
  • scale
  • innovation

Financial firms need to rely on technology that allows them to design and implement their most complex processes across their organizations in the most efficient and reusable manner. Situational, configurable, and modular technologies allow reuse and inheritance of rules across verticals and horizontals as necessary to satisfy all requirements and be able to reuse them when a new risk pattern, line of business, jurisdiction, product type is added to the system.

5. Build for change

The only constant is change! Today’s continuous evolution forces financial firms to get hold of solutions that enable them to quickly adapt to sudden shifts, and to truly become resilient to future changes. How does technology cater to that?

From operational tweaks to profound enterprise transformations, intelligent workflows built on a collaborative, low-code platform with AI-powered decisioning provide excellent change management capability.

Low-code platform and modern, layered architecture give financial firms the tools to work smarter, adapt with ease, and accelerate digital transformation. A highly configurable system that does not require coding or coding abilities to make changes

  • powers easy management of variations, and
  • reduces complexity, while enabling reuse

Now is the time to modernize your customer risk management efforts

These five tech essentials will inform and guide the tech-buyers community in the customer risk and due diligence domain for at least the next two to three years.

Pega is already consistently observing forward-thinking leaders in the industry pivoting to continuous and holistic risk management frameworks, based on case management and modular, highly configurable, and scalable technologies, with the goal of becoming agnostic to the various detection and monitoring systems, while increasing resilience, velocity, and effectiveness.

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Industry: Financial Services Product Area: Platform Topic: Compliance

About the Author

Bringing 15 years of experience working with global financial firms in client lifecycle management, KYC/ AML, and regulatory compliance, Chiara Gelmini helps clients address the multi-faceted challenges across the regulatory and operational landscapes.

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