keeping pace with the evolving payments processing landscape · keeping pace with the evolving...
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accuity.com
Keeping Pace with the Evolving Payments Processing Landscape
Henry Balani - AccuityAdam Schabes – BMO Financial Group
Focus areas
• Recognize the AML compliance challenges in a faster/real time payments environment
• Understand the shifting market dynamics driving the need for faster/real time payments
• How to address payment speed while maintaining compliance
Problem Statement
• Faster/real time payments places greater pressure on reviewing transactions that need to be reviewed for regulatory and compliance issues
• Current review processes are batch oriented that takes time to clear suspicious transactions
• In a real time clearing environment, review processes also need to be real time
Polling Time!
Poll Questions
1. When will your firm implement a faster/real time payments system?a. In next 12 monthsb. In next 6 monthsc. Already implementedd. Still considering whether to implement
Poll Questions
1. Do you anticipate making changes to your current compliance screening processes when implementing real time systems?a. Yes – significant changes will be neededb. Yes – only minor changes neededc. No – have not really thought about itd. No – will not need to make any changes
Current state of faster payments
Trends driving Real Time Payments
4) Changing economic balance
5) Changing demographics
6) Changing regulations
3) Change of traditional banking
models
1) Changingbuying patterns
2) Increasing mobility
How do Payment systems work?
Authorization of payment
Posting of payment and checking availability of funds
Settlement of outstanding obligations between banks
Notification for beneficiary and originator
4 hours to 2 days 4 hours to 2 days
Cross border payments can take up to 2 weeks to settle
Faster or real time payments
Immediate posting of payment and checking availability of funds
Instant settlement of outstanding obligations between banks
Instant notification for beneficiary and originator
Immediate communication
Electronic payment systems where funds are irrevocably transferred and confirmed between originator and beneficiary of payment within a minute
Authorization of payment
Benefits of Real time payments to Corporations
Faster settlement times Enhanced visibility Ability to track payment flows
Improved cash management Improved service levels Reduced risk exposure
Benefits of Real time payments to Consumers
Ease of use Spending oversight
Anytime/anywhereGreater choice of payment platforms
Recognizing the challenges of implementing faster payment systems
Poll Questions
3. Given the compliance challenges to screen real time payments, what type of payment transaction should be screened?a. Low value paymentsb. High value paymentsc. Domestic paymentsd. Cross border paymentse. All of the above
Poll Questions
4. What is your biggest concern about faster payments processing?a. Cost to my organization and/or clientsb. Same Day ACH is still not fast enough to meet
industry needsc. Compliance and operational risksd. The additional operational capacity needed to
take advantage of faster payments
The 3 legged stool to optimizing AML Compliance in a faster payments world
People- 24/7 support- Training
Process• Establish SLAs• Segment payment
types • Categorize customers• Set transaction limits• Instant escalation &
dispositioning
Technology• Include additional
elements to improve matching capability
• Additional unique identifiers
• Improve data quality• Improved matching engine• Data analytics - Real time
learning algorithms that proactively reduce false positives
• Optimize false positive rules
What faster payments means for AML Compliance
Wire Ops and/or Compliance manually approve/reject hits
Overseas Branches/Correspondents Can Reject Payments
Repairs
Core Banking
Payment transaction
Payment transaction
Front End
Treasury System
Trade System
Payment transaction
Payment transaction
Matched Records
Possible errors-Incomplete or inaccurate Beneficiary bank data-Incomplete or inaccurate IBAN numbers (Euro payment)-Incomplete or inaccurate Intermediary bank SWIFT/BIC-Incomplete or inaccurate payment routing attributes
Overseas BranchOR
Correspondent OR
Beneficiary BankWatch List
Filtering
Payment transactions requires compliance checks
Nigeria
Zenith BankImport/export
AMLKYC
Sender
Fx
Request
Germany
Deutsche Bank
Import/export
Beneficiary
United States
CITI Bank
AMLKYC AML
KYCFx
$50
₦ 31.500.000 $100.000
$50
$99.750$99.900
$50
€90.5302 days 2 days
Nostro Vostro relations Nostro Vostro relations
Swift messageSwift message
Sue wants totransfer $100K from her Nigerian bank account to a German bank account.
The sender bank needs to execute KYC and AML before thetransfer can beconfirmed. Thosechecks will be doneby all banks involvedin this use case.
3
The money will betransfered in USD, sothe local currency(Naira) need to beexchanged to USD
A lifting fee willbe taken in each bank-to-bank transfer
The cross border transfer is done on the Nostro-Vostro relationship between Zenith and CITI and then with CIT and Deutsche Bank
The funds are deliveredto the benficiary, whoreceives the money in Euros
The funds are exchanged fromUS Dollars to Euros, resulting in Fx costs
Messaging flowsthrough the Swift network
Multiple AML/KYC checks challenge real time payment systems
1 day 1 day
AML/KYC checks
Streamline process and automate workflowMaintain screening software currency
Train staff Leverage offshore support model
Improve tuning effectiveness and frequencyImplement technology automation (Robotics, Machine Learning and AI)
Considerations to address payment speed while maintaining compliance
Screening Payments Areas of Focus
Payment System
Screening Lists
Screening software
Payment Operations
AML Watchlist
Team
False Positive
True Match
Release
Reject
Hold/ EscalateIncrease tuning efforts
(industry avg 4-8%)
Leverage technology automation for alert assignment and triage• Robotics• Cognitive
Desktop Automation vs. Cognitive AutomationThere are two primary categories of Robotic Process Automation (RPA), desktop automation (which encompasses UI-based and back-end automation), and cognitive automation. Understanding the differences is key to executing successful process automation.
Deep Insights into Massive Data Sets
Cognitive Automation
Automate keystrokesUI Automation
Replicates user interaction at the UI level via mouse clicks,
keystrokes, and image recognition
Perfect Combination of Speed & Simplicity
Back-End Automation
Interacts directly with other programs via back-end
communication, independently of the UI
Desktop Automation
1
2
Simple vs Powerful
Centralized & Trackable Flexible
3
4
Quickly Deployable
RPA tools generally choose to emphasize either simplicity and flexibility, or processing power and scalability
RPA can automate almost any rules-based based
RPA tools are almost always much faster to build and deploy than traditional systems
All RPA tools focus on creating centralized governance, reporting and tracking tools
1
2
Cutting Edge Technology
Interactive & “Smart”
Able to analyze massive data sets to provide insights that humans cannot. Best suited for stable, high-volume processes
Relies on structured data and the existence of patterns. It is able to learn and improve its calculations based on iterative cycles of human feedback
Uses complex mathematics to determine whether there is a relationship between variables provided
by a user
Control Tower/AnalyticsMonitor business activities for
automationDerive insights about performance
Workflow Robotics ORC -Digitization
Cognitive (AI)
Worker Mgmt
Process-level
automation (vs. task
level)
Automate application
s using application
UI
Automateconversionof data to
digital form
Automatejudgment work on
unstructured data
Automate routing of
exceptions and quality
control
Software solutions bring together all of the capabilities an operations team needs to automate
and digitize a process(i.e. WorkFusion, Blueprism, Automation Anywhere, Pega)
Anatomy of Cognitive Automation
RPA/Cognitive Automation Platform
Understanding the Process issues involved
Establish SLAs• Identify the blockers• Determine acceptable
resolution times• Prioritize updates• Establish penalties for
violations of SLAs
Segment payment types • P2P, P2B, B2P, B2B• Identify processing requirements• Understand settlement obligations• Consider Compliance programs at
partner companies (may not need to screen the counterparty in a closed payment partnership)
Understanding the Process issues involved
Categorize customers• Service levels• Transaction values• Transaction limits
Escalation & Dispositioning• Ensure technology & staff
available to review suspect transactions
Understanding the People issues
24/7 Support and Decisioning• Consider outsourcing/offshore model
AML Compliance Training
Questions?
Henry Balani, DBAGlobal Head of Strategic [email protected]
Adam SchabesManaging Director, AML TechnologyBMO Financial [email protected]