Use of analytics in financial

services to combat Fraud and Anti

Money Laundering.

The Data Warehouse Institute (TDWI)

3 August 2011

Richard MooreHead of Security Advisory & Investigations, Group SecurityCommonwealth Bank of Australia

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Disclaimer

The material that follows is a presentation of general backgroundinformation about the Bank’s activities current at the date of thepresentation, 3 August 2011. It is information given in summary formand does not purport to be complete. It is not intended to be reliedupon as advice to investors or potential investors and does not take intoaccount the investment objectives, financial situation or needs of anyparticular investor. These should be considered, with or withoutprofessional advice when deciding if an investment is appropriate.

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Themes

Evolution of fraud and Anti Money Laundering in banks

Technology and analysis working together

Some high level successes executing strategies

Benefits of the approach including

Increased customer service

Reduced fraud

Reduced regulatory risks

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Commonwealth Bank Group scale

Australia’s leading provider of integrated financial services

Employs 42,500+ staff globally

Customer base 11+M

7 million+ domestic transactions each day

70,000 international transactions each day

More points of access than any other Australian bank

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Firstly, Group Security’s Operating Model

Fraud policies and

standards

Fraud Risk Assurance

Program

Training & Awareness

Intelligence & Planning

Strategy & Capability

Fraud Risk Advisory

Fraud detection policy

& standards

AML, fraud and

Sanctions operations

Rules, modelling, data

analytics & information

Measurement

Financial Crime

Shared Services

Protective security

policy & standards

Physical Security Risk

Assessment Program

Global Incident

Monitoring Centre

Protective Security

Investigations policy &

standards

Staff investigations

Major fraud

investigations

Internal control reviews

Investigations

Business continuity

management policy

BCM systems &

reporting

Crisis & emergency

management

Business Continuity

Management

Bankwest

Indonesia

New Zealand

Others

Chief Security Officer

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2005: Group Security IT Strategic Plan

Access to timely and accurate information about current & emerging risks to the bank, including:

fraud

money laundering

terrorist financing; and

other criminal activities

Scaleable ability to monitor activity across a wide range of products and channels, both in Australia and overseas

Help all business units to monitor and respond to their risks 24 x 7, minimising our customer’s fraud exposure

Deliver and demonstrate an efficient and valuable service to our customers & the Group

Reduce the total cost of ownership for our fraud detection solutions

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Our strategy…

Holistic

Financial

Crime

Management

Scaleable

Systems

Lower

Costs

Centralised

Case

Management

High

Quality

Metrics

Improved

Customer

Service

Data

Re-use for

BI

Disconnected

Approach

Bespoke

(siloed)

Solutions

Higher

Costs

Poor Case

Management

Different

Fraud

Departments

Multiple

Data

Marts

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Financial Crime Platform

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How it works…

Fraud AML Sanctions

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Filter approach – targeting the right activity

Fraud AML Sanctions

Detection Engines

Case Management

Analytics

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Our Evolution of Analytics

• Off the shelf solutions –neural and parameter driven

• Vendor supported models

• Basic rule writing capability

• Converted operations people to ‘analysts’

1999 - 2003

• Started recruiting ‘analytics’ resources.

• Enhanced rule writing

• Use of analytical software

2003 - 2007 • Data management platform – rich, clean data.

• Advanced analytical resources.

• Advanced rule capability

• Integrated filters, data matching, decision tree, behavioural modelling capability.

• Bank driven models

2007 to now

Driven by;

Increasing business volumes & fraud

Investment in people & technology

Vendors not able to keep up with change

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Goal of Event Prevention: Minimise Cost & Risk

Finite resources to action alerts – require efficiency

Right transaction in a high volume/low risk environment

Reduce customer impact whilst minimising loss

Manage total cost

Law of diminishing returns

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Customer Risk & Value

Analytics helps us prioritise focus in higher risk segments – those that hurt.

Customer service – priority to reduce impact and avoid loss

Reduce reputation & financial loss to Group

Maintain public confidence in the payment channels

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Optimising Detection Program

Analytics and Operations team working together – capturing more fraud with less alerts

Understanding the environment, customer response and rule/model performance

Prioritising alerts within operational constraints

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Showing the Benefits (Loss to Turnover Ratios)

Improvement in all categories relative to volume

Actual dollar fraud losses reducing year on year – in the main

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Lessons learnt

Invest in developing a strategy for financial crimes control, including:

IT systems

organisational capability

critical success measures

Good analytical systems demand higher quality, granular data.

Enterprise-wide strategy is required

Leverage existing & emerging operational, technological or regulatory requirements (i.e. AML, privacy, technological changes)

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Emerging Threats & Our Response

Criminals morph and target weakest point

Analytics, agile systems and flexible operations allow us to adapt to changing trends

New products and channels are brought into our monitoring program

Supporting our customers in strengthening their controls

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Questions….