Global fintech and funding innovation ecosystem

The investigator-centered approach to financial crime: Doing what matters

McKinsey & Company | Adrian Murphy, Kate Robu, and Matthew Steinert  | June 1, 2021

financial crime fingerprint - The investigator-centered approach to financial crime: Doing what matters

The investigator-centered approach to fighting financial crime fosters collaboration among banks, law-enforcement agencies, and regulators for greater effectiveness, efficiency, and social impact.  Technology in fact now accounts for a significant part of the financial-crimes budget.

The demand has generated myriad offerings by incumbent and new vendors, which vie for the chance to alleviate their clients’ many pain points. Regulatory-technology start-ups have attracted billions of dollars in investment in recent years, the bulk of it focused on know-your-customer and anti–money laundering (KYC/AML) use cases.

Despite this trend, most banks report that manual processes persist. When asked, banks say that as much as 85 percent of FCC and AML activities remain administrative or nonanalytical in character (such as the manual collection of data from some systems to import into others).

To experts, this is not surprising, actually. When asked, most financial-crime AML practitioners will say that their focus is on ticking boxes for regulatory compliance rather than investigating leads and intercepting proscribed movements of funds.

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Further evidence of the institutional focus on procedural compliance is the high number of defensive suspicious-activity reports (SARs). Filings have proliferated partly because the tools used for transaction monitoring and due-diligence processes are astoundingly inaccurate. Only one or two transaction-monitoring alerts per hundred is typically acted upon.

1. Focus on sources of productive leads

This is the heart of the investigator-centered approach. The best way for financial institutions to allocate FCC/AML resources is to set investigators to work on cases based on some kernel or snippet of information that points to unlawful activity. As previously mentioned, the leads come from inquiries from law-enforcement or other external partners, negative news, and, to a lesser extent, analysis of abnormal activity.

2. Assemble agile cross-functional investigative teams

The financial-crime investigator of the future will not be an individual but a cross-functional team. It will include former law-enforcement agents; business, fraud, and cyber experts; product specialists; data scientists; and financial analysts. The team will thus be well positioned to connect the dots in a case. In rapid development cycles, the team takes in leads, substantiates cases, probes for real material risk, and stops where evidence is limited or material risk is low.

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financial crime dashboard - The investigator-centered approach to financial crime: Doing what matters

3. Enhance investigative tools

To put the investigative team at the center of financial-crimes risk management, banks must enable team members to spend the vast majority of their time investigating.  The solution lies in deploying the data, analytics, and technology needed to free human investigators to produce better results in the highest-risk cases. The technology-aided investigation can improve outcomes dramatically, providing investigators with a more complete view of the parties and transactions involved, drawn from more diverse data sources.

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NCFA Jan 2018 resize - The investigator-centered approach to financial crime: Doing what matters The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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